HODL THE LINE...
Have you come across this "HODL" term? It is widely used in the world of cryptocurrency and NFT. Cryptocurrency you will be familiar for sure. NFT stands for "Non Fungible Token". Go google it up to see what this NFT is.
"HODL" means HOLD spelt in a wrong way....it is used by NFT holders as a mark of support ie. holding the price of an NFT, which would be mainly at the mint (creation) price or the lowest running price on the secondary market.
As most NFTs starts with a limited supply of around 5000 to 10,000 units, it can be quite volatile if some of these 5000 or 10000 NFT holders start to liquidate their position at prices below cost (mint price). When NFT holders starts to see heavy selling below cost/mint price, then it creates a spiral effect to weak holders to liquidate to cut loss, until all weak hands finish their selling, the NFT price would not stabilise and for remaining holders to gain, they have to swoop-up all the NFTs selling below cost to bring up the prices slowly.
If prices HODL and more interest kicks into the NFT, then the market price would tend to go up, sometimes more than 100x the cost to acquire it.
In the stock market, we can also see this as the support prices or when there are sellers willing to sell at lower and lower prices. In a downturn of a stock and during market bearish times, we see that stocks goes lower low because at any new lows, there continue to be sellers willing to sell the stock. Capitulation/bottom would only be achieve when there are no more sellers and as a result the selldown slows down and reach bottom and the stock starts to move sideways and when newsflows within the stock or stock market turns bullish, the stock will rise again. You can identify these by looking at stocks that move in high correlation with overall market like SPX/NDX until a point where the selldown slows down even when market tumbles 5%, the stock hardly moves down anymore.
It all makes sense how the NFT market behaves and how it is a simple form of the stock market with similar price actions.
SPX
The Feds has sent trembles to the market, swooping down 5% from the highs of the week! SPX closed at 4271, right at our weeks lower range. When the Fed starts to talk about 75 bps rate hike in May and no longer the 50 bps, that triggered the market selloff as most were already expecting to accept 50 bps as the mark early May.
There might be a lot of people caught long as SPX crossed above 200 MA on early Thursday. The sharp 2 day selloff of around 245 points may carry over this week before hitting the next support line at 4160.
ES Mini Futures (/ES) opened lower on Sunday with relatively thin trading. Trading for week to be around 4100 to 4400 range, trading more towards downside coming to the 4 May rate hike announcement.
NDX
NDX gave up the market with close to 1000 points drop (6+%) for the week. Those who expected a rally back up above 50 MA was quite disappointed as that did not end up well.
Earnings season was a bit mixed with NFLX having another 38+% decline post earnings, a whopping $135 down! As said, the market have no mercy on these stocks if they do not meet expectation or show lower future growth. Even Bill Ackman were forced to cut loss of $400m with these kind of drop as hope for recovery may well be better found elsewhere. We did expect NFLX to go down but did not think by that much, as we only put on a bear put spread $5 width for around 1: 1 risk reward. We briefly covered the Zacks.com earnings expectation to be on downside during Traders Talk last week.
TSLA however made positive earnings and shot up 100+ before losing back most of it the next 2 days ending Friday.
This week range between 13000 and 14000, trading down more to bearish side.
This week we expect to have more exciting earnings this week:-
25 April - ATVI (BMO)
26 April
MSFT, GOOGL, VISA (AMC)
GOOGL
27 April
BA, SPOT (BMO)
META, PYPL, QCOM, PINS, NOW (AMC)
28 April
TWTR, CAT, MA, MCD, MRK, DPZ (BMO)
AAPL, AMZN, ROKU, INTC (AMC)
29 April
CP, ABBV, HON, BMY, AZN (BMO)
TRADING EARNINGS - BIG MOVEMENTS....
There are various strategies we could play earnings.
The one thing expecting nearing earnings is increase in IV. This is mainly caused by the uncertainty in the binary event (ie. earnings) and the market prices the options up. The options prices goes higher pre earnings and post earnings after things settles down, the IV contracts. Even, if price does not move post earnings, the contraction in IV will result in profits if you are selling premiums. However, a word of cautious during these uncertain times, where post earnings movement can be 20% up or down and movements can go 2 standard deviations and above, having undefined trade positions for earnings is quite risky.
IV plays during this time will not be that great as VIX is now elevated again at 28 as of last Friday and most stocks IV would have gone up. If overall market does not go down, the IV of stocks may stay high regardless of earnings or no earnings.
However, directional defined risk trades may also profit from significant swing ups or down. We would go for stocks which have high swings to get higher probability and quick max profits. Single call/put premium will be quite expensive during high IV environment, so vertical spreads will result in cheaper entry as the short call/put will offset the high premiums on net basis. Risk to reward should be at least 1:1+
Example of the NFLX Bear Put Spread which we did for earnings, the trade went deep ITM and as a result almost max profit is achieved without having to wait till expiry. NFLX trading at 215 more than 100 ITM. ROI 122%.
Another example of earnings trade on KMB using Bull Call Spread $5 width where the shares popped $12 post earnings about $7 ITM when we closed the trade post earnings announcement. ROI 126%.
Overall direction this earnings cycle would be bullish on consumer and pharmaceutical and bearish on technology (loss companies, declining subscriber base). Please checkout in zacks.com for the Zacks Ranking and Earnings ESP. Zacks Ranking - Sell + ESP negative = Bearish and Zacks Ranking - Buy + ESP positive = Bullish.
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DISCLOSURES
Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options: https://www.theocc.com/components/docs/riskstoc.pdf
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