IT'S LIKE A TRANSFORMER SEQUEL AGE OF THE OMICRON
Last Friday was supposed to be a quite week after the Thanksgiving holidays and many people had taken the week off already celebrating and giving out appreciation and thanks to their loved ones.
Little did we know that it would be the most hectic day for whole of November because the market has dropped by 106 points (2.27%) even before the market has started. To add to it, Friday was half day trading hours only and you have to workout your trades and whatever repairs, opening or close all within that short few hours.
Most would have waited for a while hoping the market would stabilise and unfortunately, the market did not budge up from the day's low till the end. Leaving, little time to salvage positions, if there are anything left.
Really, it would probably be the next Transformer sequel, where a virus has been brought in by the Deceptacons from Cybertron to infect earthlings and mutated from its weak form to a Delta variant and then multiplied 30x its potency now to the Omicron variant. Planet earth scrambling to contain the virus by shutting its doors to anyone having even the tiniest association to it.
As market had scrambled in July when Delta popped by, dropping almost by 4% in a week, this Omicron being 10x more deadly say the market dropping 2% in a single half day. What would the expectation be when market opens on Monday?
Surprisingly, the ES mini futures opened up green, which means the market don't bother if it is called Delta or Omicron, just "show us the money...."
MARKET UPDATE
SPX
It has been quite some time since we saw huge long red bars in a single day. For those who has yet to experience this, I want to let you know it is not something nice at all. To have a belief that we are not vulnerable to days like this is really dangerous as days like this might come anytime and can be on the most unexpected days.
Because of the uncertainty in this new Omicron variant, the market selldown is much stronger. The market can continue to go down in the next week if there is no clarity on how contagious this is and if the current vaccines works against infections. But once this clarity comes out and if the statement is that this strain can be controlled by existing vaccination, then the correction upwards can be very fast, I mean very fast.
Sector which is most effected for time being is those involving travel, airlines (eg BA, DAL, LUV), hotels (MAR, H, BKNG, EXPE, ABNB), cruise (CCL, RCL, NCLH), and theme parks (DIS). Sector which is having a positive effect would be stay home stocks like streaming (NFLX), Video conferencing (ZM), electronic documents (DOCU), consumer cleaning (CLX) and health (PTON, TDOC).
Of course, these stocks have already moved last Friday, but the situation in the next days will result if it will continue to slide or go up. There might be opportunity plays in these sectors now.
NDX
NDX went down 364 points similar to the SPX of around -2%. Similar to the drop when the Delta variant came on. But the last round, it was only a one day slide.
There is a joke around that the naming of "Omicron" is also "Moronic" if the same words is jumbled like playing scrabble. Hopefully, it is really only a moronic over reaction for all countries and this variant is not as scary as it sounds. People are just going crazy if we start to lock them down again as we can see on protest all over Europe as the countries start to implement their counter measures to avoid the spread of this Omicron/Moronic strain.
Just watch out for all those heavily retracing stocks back to support levels to find opportunities amidst this havoc once again.
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CSP PORTFOLIO PERFORMANCE (UP 8.8%YTD)
(Portfolio performance is on MYstylework's Portfolio and is not a recommendation to buy and for informational purposes only. You are adviced to seek your own professional adviser's views and perform own due diligence when evaluating any stock, options or investment trades)
We continued to roll most positions because of the continued drop in the prices of KWEB in particular. Premiums from rolling of the positions is still around 1% for 3 weeks. Takes a bit time to get back OTM but as long as the price does not go far down, we can continue to generate decent premiums we would still be okay with the positions.
The market is a bit volatile especially with the new Covid variant causing uncertainty worldwide. You might be a bit selective on the stock selection, moving away from the stocks which is being affected by the virus and going into stocks which have more positive impact from Covid. Alternatively, stay out for time being on new trades is also one choice and when the situation improves, you go in at a higher Delta for the stocks which is recovering up.
Another approach is also to move lower down in strike price to get higher margin of safety as the volatility during this period may also be higher to enable us to do this.
Do whatever is comfortable for you but do remember the golden rule, do it on stocks you do not mind buying at the selected strike price.
OPPORTUNITY OR DANGER?
When the market is having a sell off, does it pose opportunity or danger?
Well, the answer can be both. Opportunity if we know what we are doing and risking and danger if we act blindly.
In terms of selling premium, you can do spreads with limited risk on stocks which are strong and will bound to go up once this Omicron goes away or is in control. How long, we would not know but even if it was the first time when the whole world came to lockdown, the market only reacted for less than 3 weeks. But within this 3 weeks, most stocks gone down by no less than 20-30% and in the subsequent year went back up to more than 100% for most.
As prices may continue to go down, you may want to wait a bit longer till you can get the strike price you are comfortable or having a support level, eg 50 Moving Average or 150 Moving Average depending on the past historical trend where it has its support. But seems market is not giving you so much chance nowdays as the ES Mini Futures is already green on market open.
Filter through you stock list and pre identify these levels and set alerts to notify you when these levels are breached. A bit of homework and effort during times of opportunity helps really a lot to gain trading advantage.
Example of setting alert points in charts are like below. Once these alert gets triggered, you will then decide if any trades would be possible. You can use tradingview.com to set alerts, yahoofinance.com or even your own broking platforms.
FREE iPhone 13 Challenge
The latest position is now at a loss of $161 but the price is at the sweet spot just in the middle of the short strikes of the put (155) and call (160). If the price stays in between this till expiry, we will have a great win on this. We do not mind if the price continues to slide down in the next 1 to 2 weeks as we will have a better opportunity to win in the trade if it goes down now rather than goes up. IV reduction will also cause the trade to run into profit quicker based on current price levels.
Current risk profile of trade. AAPL is trading at 156.81 which is right in between our Iron Condor strikes.
For those who have not registered for the iPhone 13 Challenge, the registration link is here [Register Here]. We will share the trade entries when we do a trade and also explain in detail the executed strategy in a video at the Challenge Members Area.
TRADERS TALK
Did you hear last week's Traders Talk?
I was speaking on why you should not invest in property but instead learn how to buy property. Is there a difference, yes for sure!!! Listen to Traders Talk Series 24 if you have not done so. View Past Traders Talk
I have even got the highlights here for a sneak peak...Sneak Peak Traders Talk
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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
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.
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