Options Trading Newsletter - Issue #126
Your Voice... [Options Today...Use of Artificial Intelligence in Trading]
Your Voice… [Options Today…Use of Artificial Intelligence in Trading]
Over the weekend, it was once again the States Election in Malaysia. Just several months after the national election, we are once again allowed to voice out our preference in a democratic way. Still a privilege to make choices as some countries, they do not have such luxury. Anyway, the turnout was much lower, only 60+% as compared to over 70% during the national elections. Arising therefrom, there are several marginal wins, which case would have been different if more people were to come forward to vote. Hence, the phrase “Your Vote Counts” is always true because you will never know when it is needed.
It’s not to be political but just to state that at every point in time we can be enthusiastic with things we do and it is not easy to keep it up always. We need to be frequently reminded to keep going, keep ourselves motivated to move forward because our internal energy will be drained at times and achievement level comes down. Just like the politicians, they have to show up everyday and not only 2 weeks before election day to fish for votes. Your success depends if you show up everyday, whether you like it or not, whether the weather is good or not, it doesn’t matter. It’s not easy, but that is just what needs to be done until you are successful.
“Democracy thrives when we show up, not just at the ballot box, but every day in our actions and commitments. Success, like voting, is a daily endeavor." - Nelson Mandela
SPX (4464)
CPI July came in at 3.2% slightly below forecast of 3.3%. This was an increase of 0.2% from last month’s reading which signifies that inflation went up over the period. Mainly driven by food and energy prices. On the other side, unemployment rate started to trickle up to 248k as compared to forecast of 231k.
The FedWatch probability of a rate hike in September went down from 30% last week to only 11% now.
We will see if SPX can maintain above the daily 50 MA for now. If it breaks down, we can likely see a broader pullback to 4300 levels. We have already seen all the pullback actions on the Magnificent 7 from its highs. The more resilient ones being GOOGL and AMZN. For now, we are staying out of Techs. We still have our trade position on AAPL though, which we keep a tight watch on the 100 daily MA.
This week, Retail Sales on Tuesday and Unemployment Claims on Thursday. Probably a sideway market for the week until the market finds a justification for a clearer direction.
The trading range for the week is between 4400 and 4500.
NDX (15028)
NDX continued to slide 246 points (1.6%) for the week. From the highs, it has shaved off almost 6% and what has brought it up, ie. Magnificent 7, has all retraced from its highs. Even stocks like PLTR gave back 24% from its highs. Market is taking a big breather as profit taking is a right thing to do for now on an overbought market.
For the time being, the market is still poised to go down further. US10 Year Treasury rates have breached above 4% and if it stays high, it’s not good for equity.
Once NDX gives up 15,000 level, we are poised further down to 14,000. The signs of a weaker economy will bring the market lower. Retail sales data on Tuesday and unemployment on Thursday could be key signs of where the economy was at in the last month and where it will be in months to come. Keep a watch on retail stocks like WMT and COST where both has reached preceding high levels.
The trading range for the week is between 14700 and 15300.
HANG SENG INDEX (19075)
The weak export numbers has further brought HSI down for the week back to the 19,000 levels. Losing more than 1000+ points within a 2 week span. We were stopped out from the long position and now waiting for it to go down below 19,000 before making any trades. As it moved down so far, we would see if it reaches the lower points at previous lows between 18,200 and 18,000, before making any further trades.
OPTIONS TODAY [Use of Artificial Intelligence in Trading]
Will AI be able to replace traders? I think for the time being, it can help us but not totally replace us. Because the Large Language Models (LLM) used now has so much datasets within its knowledgebase, the output is still very dependent if it understands fully the question it is asked. Even in AI trading softwares or programs, the actions taken are also based on the programming parameters set by a trader or programmer. Without the right context and knowledge of trading, these parameters or programming logic would also be set wrongly. We have not even included market unpredictability which even the top traders cannot foresee.
Recently, we tested ChatGPT Plus “Code Interpreter” and asked it to identify within the price dataset the standard deviation move of GLD for the past few years and outline for us which are the months that it has moved beyond 1 standard deviations. We also asked what were the key events that has happened during the months which it has moved beyond 1 standard deviation. Below the results:-
We also asked what were the key events that had resulted in these outlier months and the answers were follows:-
Central Bank Policies & Interest Rates: Several of these months corresponded with significant announcements or actions by major central banks. For instance, in 2019 and 2020, the Federal Reserve made several interest rate adjustments and launched monetary policy initiatives in response to economic conditions.
COVID-19 Pandemic: The months in 2020, especially March to December, were heavily influenced by the global pandemic's economic impact. Gold, as a safe-haven asset, saw increased demand during periods of uncertainty and market volatility.
Geopolitical Tensions: 2019 and 2020 had heightened geopolitical tensions, including trade wars between the U.S. and China, which influenced gold prices. Gold often rises during periods of geopolitical unrest as investors seek safer assets.
Economic Data & Recovery Projections: Throughout 2020 and 2021, economic data releases, such as unemployment figures, GDP growth, and inflation reports, played a crucial role in shaping investor sentiment, impacting gold prices.
Currency Strength & Global Economic Health: The strength or weakness of the U.S. dollar, influenced by various factors including central bank policies and global economic health, played a role in gold price movements. A weaker dollar often leads to higher gold prices.
The results above are to understand the price behavior of the GLD ETF, which we can then use proper options trading strategies to capitalise in the price action behavior and also understand events that might affect the strategy used.
To derive more accurate results to help you in your trading decisions, you will also need to know what to ask ie. input the correct “prompt” and also not all answers will be 100% correct and hence you will also need to validate and challenge the answers to give better results. Understand Options Trading strategies will also allow you to adapt or even validate if such strategies will work in any given scenarios from the data/output derived.
It is more of another level of knowledge and skills that Traders have to learn in order to have AI to assist it in coming out with AI assisted validation and crafting high probability trade strategies. The rewards are incredible if you successfully found and crafted the “ONE FOOLPROOF AI TRADING STRATEGY”. In the next weeks or months, we will definitely dwell into these LLMs and AI to help us become better traders and we will share with you the results if we craft any.
TRADERS TALK
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TIKTOK VIDEOS
Options Today - Bullish Trade on Apple. Increase Probability of Profits from below 40% to more than 80%. Trade as explained in our Options Trading Newsletter No.124. 31 July 23
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Understanding IV - Part 1 - Understanding IV relation to options premium and how to read different measurement of IVs.
Understanding IV- Part 2 - How to use IV to trade GLD ETF.
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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
MYstyework is an Online Financial Literacy Educator and materials provided is solely by MYstylework and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, transaction or investment strategy is suitable for any person. Trading securities can involve high risk and the loss of any funds invested. MYstylework, through its contents, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors, and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. MYstylework is not in the business of transacting securities trades or an investment adviser.