Options Trading Newsletter - Issue #103
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Options Trading Newsletter - Issue #103
Invest in knowledge...
INVEST IN KNOWLEDGE…
One question you should constantly ask yourself is have your learning stopped? If you have been working for sometime in any profession, your learning would have stopped if you are not kept up to date with the latest in your field, what’s the latest way in marketing, latest accounting issues, latest programming trend, latest engineering technology and so on. We don’t need to det a degree to keep up to date on everything, but just enough to help us in what we do everyday and get good at doing it. That will not only land you to get a promotion or make more profits in a business but make you constantly grow and become fulfilled in what you do.
If you want to become even better, invest in a knowledge outside your professional field which will help you grow even more, whether in relationship, financial or health. If you don’t believe me, just pick one and diligently invest in it for a year and see at the end of 1 year how you would have benefited in that area. One simplest way, is of course through reading, others may be attending a seminar or a course, whichever way suits you. Invest in yourself and let the path take its course.
“An Investment in Knowledge, pays the best interest - Benjamin Franklin”
SPX (4045)
SPX rallied strongly on Thursday and Friday after finding support at around 3950. with less than 2 weeks to the next CPI on 14 March, will it be able to continue the strong bullish trend? I would say not without many obstacles in between, because until then, there are many more economic data release, with Thursday, unemployment claims and Friday, Unemployment Change and Unemployment Rate.
We will watch again 4100 level as the next resistance above and 3950 as the support below.
The trading range for the week is between 4000 and 4100.
NDX (12290)
NDX broke below 12000 on Wednesday but quickly rebounded strongly on Thursday and continued through Friday. It is up almost 2% for the week and closed the week with a bullish candle.
The reversal may continue up towards 12690 before it hits the next resistance level. Jobs and unemployment claims may be the next catalyst to see if the momentum continues upwards or reverse back down for the week.
The trading range for the week is between 12150 and 12400.
TRADING OPTIONS ON HANG SENG INDEX (HSI) AND HANG SENG TECH INDEX (HSTECH)
The continued increase in the China PMI which was released on 1 March had given a boost to the market bringing it back above the 20000 mark on Wednesday. The HSI index went up a strong 4%+ on that news alone. HSI has declined for almost 13% since end of January.
Although, in subsequent days, we saw some retracements, the market continue to be bullish despite the recent retracement. Hopefully, the CCP meetings over the weekend will bring more positive economic news to push the market up once again.
QUICK BITES
We issued another Quick Bites last week on XOP Iron Condor trade set-up. Check it out here.
COMPENSATING LOW IV
With VIX coming down back to the 18 levels, the IV of stocks tends to come down causing premium selling trades to be less attractive. These low IV environment can happen in bullish markets and if the duration is long, does this mean we cannot be selling options anymore?
Well, not necessarily as there are several things we can still do to obtain higher premiums. One way is of course to increase duration. Say when IV of stocks are high, we can do a Bull Put Spread with a risk to reward ratio of 4 for 1 in 45 days DTE. But during low IV environment, the trade may go to 5 for 1 due to the lower premium received. To compensate, the low IV, we may extend the trade duration longer to get back to a risk to reward ratio of 4 to 1, say extending to 60 days as an example.
One downside which we may need to monitor is when VIX increases during our extended trade, it may go against us as IV expands and our options will increase in value. As long as we understand how we trade it and what metric changes that we need to monitor, it is okay to change the way we trade once in a while as otherwise, it would be no feasible trade to enter.
In any case, I would not advise for any credit trade beyond 60 days unless we really see markets which just goes up with minimum volatility in between.
TRADERS TALK
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We covered a Trade Digest - XOP last week.
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TIKTOK VIDEOS
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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.