Options Trading Newsletter - Issue #138 Enduring Legacy... [Options Today - Post Earnings Play - Bearish on AMD]
Enduring Legacy... [Option Today - Post Earnings Play - Bearish on AMD]
ENDURING LEGACY… [Options Today - POST EARNINGS PLAY - BEARISH ON AMD]
Yesterday, I delved into the rich past history of a legend “Bruce Lee” at his ancestral home in Guangdong, China. He is famed as a martial arts legend and a Hollywood superstar, it’s lesser-known that Lee's journey was fraught with adversity. lesser-known that Lee's journey was fraught with adversity. At a young age, he left his family to pursue education and opportunities in the United States, setting the stage for his future as a martial arts instructor and later as an actor. His path was marred by racial discrimination, a nearly fatal injury, and financial hardship.
These did not deter him to become a well known martial star expert and one of the earliest Asian Hollywood superstar. Although his life was tragically cut short at age 32, his spirit endures as a beacon of inspiration, influencing countless individuals and leaving a profound impact on martial arts and cinema. Bruce Lee's enduring legacy is not just in his fame, but also in his exemplification of resilience and the "never say never" mindset that continues to illuminate the journeys of those who follow in his footsteps.
Leaving a piece of the Legend of the Dragon with you….
“Knowing is not enough, we must apply, Willing is not enough, we must do… - Bruce Lee”
SPX (4358)
SPX held support and bounced strongly gaining 240 points (5.8%) for the week, something which we have not seen for long. Each day opens with gap ups and now SPX seems to want to go higher after putting behind most economic data releases such as Fed Fund rate and unemployment/non-farm payroll.
It now seems to be looking to test resistance level of 4400 again. If it breaches, we may well go into the year end rally as most retail would be hyped with the idea of an incoming Santa Clauss Rally.
Trade range for the week is 4250 to 4500.
Our neutral play on SPY covered in our newsletter issue #132 played out perfectly as our trade. We shared below price thesis:-
“When volatility sets in, options premium increases and options sellers will get paid enough to take on the risk even for low IV products like SPY. As we are half way down the price action from the highs, it may be suited to enter into neutral trades as the stock can move both ways and our trade will still be profitable, as long as it stays within the upper or lower boundry. Even if price continue to slide, it may reach an oversold position by or close to expiry and hence a retracement up to get back within the price band close to expiry. By understanding, IV, price action and trade adjustments, neutral trade strategies can provide us with worry free and high win probability trades.
Price came down after entry and we legged out of the Bear Call Spread when its extrinsic value went below $0.05, leaving a Bull Put Spread which initially went ITM and in the runup this week, we exited the Bull Put Spread when the leg turned profitable. Overall we took in 90% of the premiums.
NDX (15099)
NDX turned around last week but maybe too fast and in a haste. Even if the Fed Chair has affirmed that hikes in current year is unlikely, there is still no change in expectation that rates will only taper down in June 2024. The negative unemployment and jobs report is also not much to shout about as we only see these numbers slightly lower than last quarter. Does this justify for a 6.5% increase in a week?
Price wise, we see that there is a resistance line which it bounced off at close on Friday. To confirm, a change in mid term direction, we need still to see a breach above this resistance line and also the break of previous lower high of 15333.
Trading range for the week is between 14850 to 15750.
This week’s earnings to watch.
HANG SENG INDEX (17664)
HSI went up last week and we could see HSI retesting the 18000 level. The resistance on the down channel is still valid and we could see it to move sideways and come back lower continuing the channel down move of lower lows.
We went long last week after HSI went down below 17,000 and bouncing off above this level. Some positions we exited on Friday and some on open today.
The lower support now at 17000 and resistance at 18000.
OPTIONS TODAY [EARNINGS PLAY WINNER - PLTR]
We exited the trade with 67% of the max profit earned within 3 days.
OPTIONS TODAY [POST EARNINGS PLAY - BEARISH ON AMD]
AMD went up 16%+ after earnings and was a bit too much and too fast. We expect some retracement to come in the next days or week and hence is entering into a bearish position using a Bull Put Spread.
We expect that AMD hitting resistance at the triple top formation and bounce back lower, expected to the levels of $104/5 before possibly going higher. Hence, we are going to do a very short trade with 2 weeks expiry as the max profit of a Bull Put Spread is earned close to expiry. As we do not expect the retracement to be extended for a long time and just a short term retracement. Further, the overall big market rally last week could also cause a short term retracement bring down AMD temporarily.
Trade Entry (17 Nov Expiry)
But an ATM Put at $112
Sell an OTM Put at $109
Total debit paid $1.20, max profit $1.80.
Trade Management
Exit at 50-60% of max profit.
Exit at 50% loss if AMD breaks above the resistance line of $111.8 and stays above moving higher.
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