Options Trading Newsletter - Issue #151 - Life is a Play [Options Today - Call Debit Condor on BA & Updates on Positions]
Life is a Play...
LIFE IS A PLAY…
I’ve always love watching movies, yet ironically, my schedule scarcely affords me the luxury of indulging in films. But I find myself subscribing to Netflix despite rarely watching it. As if Netflix cleverly prices their subscriptions, knowing that many of us, caught up in the whirlwind of daily priorities, will scarcely use the service. Yet, we hold on, clinging to the potential for leisure time that never quite materializes.
This realization brings me to a broader reflection on life’s grand stage. Much like choosing between watching a movie or pursuing other endeavors, life unfolds as a series of choices, each leading us down a different path. In my case, foregoing the passive enjoyment of movies for more active pursuits such as writing this newsletter or engaging in trading, is not merely a matter of preference but a strategic decision aimed at securing a better future.
Delving deeper into this analogy, life itself resembles a meticulously crafted play, with each of us assuming the roles of director, screenwriter, and actor simultaneously. It’s a fascinating concept when you think about it. Every scene, every act we perform, is of our own scripting. We wield the power to cast ourselves as the hero or the villain, to lead a life of remarkable achievement or to drift aimlessly in mediocrity. The autonomy in directing our life’s movie is entirely ours, free from external dictation on how to play our roles or which scripts to follow.
It’s a message I find profoundly enlightening, and one I hope resonates with you, regardless of where you stand in life’s journey. Remember, it’s never too late to seize the pen and author your own story. Whether you aspire to be a better parent, child, spouse, employee, or entrepreneur, the script of your life remains open, waiting for you to fill its pages.
Granted, the book of life is not endless—spanning perhaps only 80 to 100 pages—and while we might not have control over the opening or concluding chapters, the vast expanse of pages in between beckons with unlimited potential. These pages are yours to script, offering a canvas for your dreams, aspirations, and the roles you choose to play.
In essence, while life’s narrative might seem predetermined by circumstances beyond our control, the reality is far more liberating. We are the architects of our destiny, equipped with the creative license to navigate our journey. Whether we emerge as the hero of our story or not, depends largely on our actions, decisions, and the paths we choose to explore.
"The only person you are destined to become is the person you decide to be." – Ralph Waldo Emerson
SPX (4958)
SPX is on its high as if it is on some kind of weed….
After the FOMC announcement, it had a brief pullback when J.Powell indicated that it is not likely for any interest rate reduction in the March meeting. The pullback was around 1.6% and the next day, the market went back smoking up…and reach new highs on Friday closing at 4958. We would think 5000 is going to be marked this week.
The upward momentum also came in from the earnings announcement of META and Amazon which gave both these stocks significant jump for the week. Meta 20% up and Amzn around 8% up. AAPL was not that lucky eventhough it met estimates, the market did not like a 20+% drop in its China business which forms significant part of its hardware sales. We were bearish on AAPL and exited the short some days ahead of earnings. The AAPL lovers came in to push the stock back up come Friday.
Surprisingly, on Friday was bullish for the market eventhough the Non-Farm Unemployment change came out significantly higher than estimates, 353k vs 187k. Unemployment claims also came in slightly below estimates. Technically, a strong economy is going to be bad for the market as it will be less of a reason to cut interest rate by the Feds. The selloff on the futures market was only for a brief time after these data came out and the market quickly brushed it off and continued their bullish momentum up whole of the trading day…mostly ticking up and only selling off a bit towards market close.
So far the positive earnings season outweighed any negative market news related to interest rates. The only few markets which reacted according to the data on Friday as Bond, Gold and oil markets. All 3 closed lower on Friday.
We expect that the bullish momentum may likely continue until it hits 5000 before any pullback on the overbought price levels. Support will be at around 4800 level.
Trading range for the week is 4850 to 5050.
NDX (17642)
Crazy week for the NDX. But the big gap down on Wednesday did not scare the market a single bit as it bounced off the next day. There are probably many short sellers waiting to pounce the market on any signs of pullback but the market continues to disappoint them. The positive corporate earnings had continued to build the momentum up. However, after this week, most of the major corporate earnings have been announced and we would expect some profit taking to happen soon.
NDX had not moved past the previous high of 17665, closing slightly below. Futures opened Monday trading in red now.
The CME Fedwatch Tool on probability of rate cuts in March meeting has been reducing every week and is now at only 15.5% after J.Powell indicated that no rate cut likely in March.
There is a price gap in area 17344 to 17415.
Trading range for the week is between 17250 to 18000.
HANG SENG INDEX (15533)
The euphoria on the stimulus was short lived and sizzled quickly. Nevertheless, we still se some form of support at the 15300 levels. The trading plan is still the same for now, long when reach lower channel and short when at the upper channel. The higher probability to risk trade would be to long HSI when at channel support.
OPTIONS TODAY - CALL DEBIT CONDOR ON BA
Similar to an Iron Condor, a call debit condor is traded when we expect the stock price to trade within a certain price band.
Trade Structure
To make it simple, we split the Debit Condor into 2:-
A Bull Call Spread, Buy a Call and Sell a higher strike Call.
Bear Call Spread, Sell a Call and Buy a Higher strike Call. The Bear Call Spread have to be at prices above the Bull Call Spread.
Indirectly, the Bear Call Spread can also be used as a trade to partly finance the Bull Call Spread. As long as we have the view that the stock price will not breach the short call strike of the Bear Call Spread.
The max loss for the trade is the debit paid.
BA Price Action
BA has been on a nice run up until the 737 Max plane door came off on mid flight in Alaska some weeks back. Suspension for safety checks grounded some planes thereafter, and the stock price came down. The stock price recovered some of the losses thereafter but again today another fuselage problem arose on the planes in production bringing a halt to another 50 planes in production. Again, BA price came down by over 2+% after this news broke. We expect that the price may hover around for some time, but eventually will still go back above 210. Support is now at 200.
However, it will not go back up so fast to its previous high of 267. 1 Standard Deviation move till 15 March expiry is $13.55. Trade price now is around $204, which means price is expected to be at $217.55 till 15 March.
Trade Entry
Bull Call Spread. Buy a Call at $200 and Sell a Call at $205. Trade cost debit $2.90.
Bear Call Spread. Sell a Call at $225 and Buy Call at $230. Trade cost credit $0.65
Total trade cost is debit $2.25. Total Max Loss is $2.25 and Max Profit is $2.75.
The risk profile will look like below.
If the price stays within 202.25 to 227.75 on expiry the trade will be profitable. Even if price move into this range during the duration of the trade, the profit from the Bull Call Spread plus the theta decay of the Bear Call Spread will also contribute to the trade profitability.
Exit the trade when we reach 50% of the max profit.
Trade Management
If BA price goes down significantly, when the Bull Call Spread is in losses of around 50% of the premium paid, then we can exit the trade by closing both the Bull Call Spread and Bear Call Spread. The Bear Call Spread will be in profit hence, reducing the losses on the Bull Cal Spread.
If BA price goes up significantly, above the strikes of the Bear Call Spread, the trade will be in losses. Before the price goes in the money on the short call strike, it is possible to manage the Bear Call Spread by rolling the trade for additional premium, in the hope that the stock price will retrace back below the Short Call Strike.
We can also set s stop loss target when 50% of the net debit paid is loss in the trade.
(as of publishing the trade has not been filled, we will notify through Notes when the trade is filled)
OPTIONS TODAY - TRADE STATUS ON SPY IRON CONDOR
The price closed within the Iron Condor price band. 100% winner for those who have kept till expiry. We exited early before close on Friday at 64% premium earned.
OPTIONS TODAY - TRADE STATUS ON MICRO CRUDE OIL FUTURES IRON CONDOR
Crude oil went down by 7.4% last week. Although the price is still relatively week, we still see support at around 71.60 level and if it breaks down, there is also the 50 MA (red line) which previously acted as a strong support level.
The trade is in a good shape and set to expire next Wednesday. The lower short put strike is at 65.75 which has a Delta of only 7, which means we have 90% probability that price would not hit this level. As most of the premiums are expired, we can set to exit the Bear Call Spread side at $0.01 and at the Bull Put Spread at $0.05 with limit GTC orders.
OPTIONS TODAY - POOR MAN’S COVERED CALL ON XLU
XLU has not moved much for the week, closing at $61.49. As interest rate are likely not to come down anytime soon, we could expect XLU to trade sideways a bit or even have further downward pressure. We will look for opportunity to roll upwards to $61 when the existing short call premium depletes a bit more.
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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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