Options Trading Newsletter - Issue #27
GRATITUDE... Be thankful for what you have...be thankful for others who come into your life in a positive way...
Gratitude...
Sometimes I think that what we have now is already a blessing...a roof over our head, food on our table, a healthy life and loving people beside us.
There are many others who are doing worse than you...many of them suffer in silence...
But lets not take it that where we are today is where we want to stay forever... Things can change with just s snap of a finger...just like in Avengers - Infinity Wars where Thanos snaps his fingers and half the Earth's population vanishes into thin air...
Just think about it....tomorrow your boss might just decide to put you out of work because the Company is not doing well or you might get a sickness that incapacitate you or you might get into a quarrel with your love one that they hate you for life.... I choose the extreme so you can envision easier what I want to say next....
So what we have today is not forever...we have to strive hard to protect it...we have to nurture it...we have to grow it....
If you are working, you may want to work even harder so you are not in line to the firing squad but to get a promotion, you might want to exercise more to keep heathy and the bugs away....you might want to communicate and spend more time with your loved ones to build a stronger relationship.
So always have gratitude for what is given to you...but never put your guard down and keep it closest to you.
"Have a selfless attitude and when someone has gratitude for your deeds, you will eventually add on to yours"
MARKET UPDATE
SPX - Sideshow....
Last week was a sideshow at SPX. The Index hardly moved as everyone was weary of the Non-Farm Payroll Announcement coming out last Friday. Actually, I wondered what were they expecting as the results coming out were expected anyway....slowing employment additions (+235k against 733k forecast) and lower unemployment (5.2% right on). After more than a year of the pandemic, many people were put out of job. In fact, many who still have a job does not even want to get back into the office. they are too used to working from home environment that they think going back to office is a waste of time. Many organizations are embracing this change and for those who have not, they will eventually be forced to. Things are going to be a little different....not to say those who have become so accustomed to generating income through the stock market...they even no longer need to go back to work.
Monday, market is closed for Labour Day...hoorah to the hard working traders of the market and it is going to be boring day but let us strategise for the short trading week ahead.
NDX
Things are more or less the same in the NDX. Waiting for Friday results to see if the bull game can continue. Having bad payroll results means better prospects for the NDX which many counters are interest sensitive. Bad employment means lower interest rate regime can continue, benefiting the tech business and supporting its high valuations. The Fed will still support the economy by printing more money or deferring rate hikes.
This week we should see more confidence getting back to the market and hopefully the market continue to be bullish.
Sometimes, it never amazes me how the market reacts to news. Last week Paypal commented that it may go into stock trading platforms and the stock jumps 3% up. Is stock trading even a good business? But if you put the story beside the hype stock like Robinhood (HOOD), then every retail investors jump in...their market mover power is great nowdays. Well, nothing to complain because I had a sulking position after the failed earnings trade when PYPL dropped more than 1 standard deviation post earnings late July. The trades are all now far OTM with even more profits added as I had to roll forward one month to get out of the earnings position. If all goes well, we should get full profits in 2 weeks time.
On the China front, last week the drive started to fizzle a bit. Those who want to re-enter may have reentered and those who are still at the sideline may well continue watching us. Most China big boys like BABA, JD, Bidu and Tencent stock surge fizzled towards Thursday and Friday. Taking a bit of breather after two weeks of rally. Hopefully it continues a bit more next week as I look to exit some positions expiring 17 September in JD and Bidu. I still have a bit more conviction for BABA with some additional long entries but the China government still can't get through more and more news for these guys...it's like they have a stash of bad news kept in pipeline to press these stocks down. Last week, the China government announced a 3 hour per week limitation for children to play online games, dampening again stocks like Tencent and Baba which has also a gaming segment within its business portfolio. Lets see how things develop in the weeks to come for China sector, overall upside gain is more than further downside risk. Have some protection in your long trades and you should do just fine to ride it through...
CSP PORTFOLIO PERFORMANCE (UP 19.2%)
(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)
This week, we added back another 5.7% to the portfolio bringing back the returns to 19.2% Year To Date. With the China stocks recovering, we should see our portfolio go back to its high of above 20% in no time.
Nevertheless, we are still consistent in our target of 2% per month on average.
Our positions for October is quite light and we are looking for a market retracement to add on some positions. There's 2 more weeks for the September expiry and most positions are OTM except one on KWEB which we put on before the drop and another on SU which should recover in time. The oil had a strong rally in the last weeks.
Some assigned positions earlier like PLTR and GDRX has its prices shot up above previous assigned prices. Assuming, PLTR and GDRX get called away, we would have generated 36% and 49% returns respectively out of the capital secured year to date.
If you had invested in PLTR and GDRX on 1 Jan 2021 via shares, your returns based on last Friday's closing price would be 13% and 3% respectively.
This is one good example that, with the right strategy and right stocks, we can use it to consistently generate an income and cash flows that may not necessary be inferior than a direct investment. Even if we are comparing it to active trading, we can still do better at times as the time spent on this strategy is far far less and with least or hardly any management required.
LETS GO TO THE RACING COURSE....
Betting on many is always easier than to chose one
Have you guys gone to the racing course before? You know the one where they put 10-12 horses and open the gates and the horse pounces to the front and thousands of punters shout and scream their favourite horse number?
They even have odds for each bet. If you bet the favourite and strongest horse, maybe you get paid 1-1 and if you bet a 3 legged horse, you get paid 1-10.
I recall the first time I went to the racing course was when I was still a kid and we went to the Ampang Turf Club, the current site for KLCC Twin Tower. You might next wonder why would a kid be let into a betting ring? Well, if not mistaken those were the last days of the racing course before they are shut down to make way for KLCC and they had kind of like an open day where old and young can visit, so my dad who loves horse racing took the whole family for an outing. Maybe my dad won some bets then because after that he took us to Popeye Fried Chicken. Today the Racing Course has been shifted to Sungai Besi, KL.
Ok, here's where I want to go. I just wanted to use horse racing to make my point on Options Trading. Assuming there are 12 horses in a race. Only 1 can win and 11 will lose. If you bet on winners you have a higher payout of 1-2 and if you bet on losers, you have a 1-0.3 payout. If this betting system exist, my dad would want to bet on losers instead because they give a higher probability of winning the game in long run. Unless you are so skillful to bet on the top horse each time.
The same goes for Options, 80% of options expire worthless. These options expired worthless benefit sellers. And the ratio between calls and puts which expire worthless depends on the market direction, bull market - puts are higher and bear markets - calls are higher.
Although, the upside for call options buyers are unlimited, the task is to really pick which stock will go that direction and fast enough before the options expires or its value diminishes. On put buyers, also the same, the price have to go down fast enough to benefit. We are fighting against direction and time.
Whereas the Option Sellers, the game is different. They earn less by selling options but get a high probability they will win in the trade. And if we use this probability to our advantage in the long run, the option sellers will generate more income and can also be more consistent. They don't really have to pick the winning horse, they just need to make sure their horse finishes the race.
Of course, we are not saying that to make money, you should only sell options. What we are saying is you should have a bread and butter strategies revolving around selling options to generate a big part of the portfolio income and to ensure you have a positive returns and you can have another part to take on the less probability and high yielding trades. Like if Facebook drop by 40%+ during the Cambridge Analytica scandal or when some great strong China stocks drops more than 50%, by all means buy a call. This is an extreme example of course, but opportunities for long always arises, just that we should not purely focus on solely becoming options buyers.
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 11 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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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.