Options Trading Newsletter - Issue #24
IGNORANCE!!! Is it an excuse or pure stupidity" This Newsletter Issue Is A MUST READ!!
IGNORANCE...
"Teacher...I did not know that I had to complete my homework on time...."
Remember this? We used to give such kind of answers however ridiculous we know just to get off the hook.
As time passes, and when we grow up, many people continue to act in an ignorant manner in all parts of their life.
"Really, I did not know that I can't make a u-turn here.... the signboard was covered by the tree branches....Mr Policeman, give chance please..."
"Wah...stock market can make money one meh.... only the big boys make money one lar....small fry like us will lose more than we make...."
Really, people just claim "Ignorance" but in fact they know very well about everything or any situation that they are in and just use it as an excuse. Because if you are really ignorant about anything in today's world that would really mean that your are "Stupid". I am not saying that you are "stupid" and I know that's a really harsh word but that was what Google told me when I looked it up. It also stated "lack of education or knowledge". I would think the latter fits more.
Frankly, I was also one person who was ignorant about financial management to the extent that I was literally in financial disaster and only realised that when I turned 40. I was making a good living and was paying off all my expenses and that's where the problem came, because that was it back then, money in money out.... bank account zero!!!
In fact, being an Accountant by profession does not necessary means that you are good at personal financial management. The truth about all Accountants are.... they are very good in managing other people's money but not their own. They "suck" in personal financial management, at least that was for me. I don't know about the rest....
My personal ignorance about financial management and planning cost me dearly, in fact it set me at back at least 10 to 15 years which would probably gave me an opportunity to retire financially free years ago. Don't let "Ignorance" hinder what kind of financial achievement you may have....
"The good news is it is never late and the path to financial freedom is shorter than you think, if you have the right tools and the right people to go along with you on your journey"
MARKET UPDATE
SPX - NOTHING NEW? PARTY ON....
SPX gained another 32 points last week to once again reach another week of all time high at 4468. It's perplexing to see that SPX has gained 19% year to date. For investors, you may probably see that your investment portfolio is not growing as much because although the market is up by 18% the increase is happening by rotation, just like a merry go round where at one time your carriage may be at the peak and at another time your carriage is at the lowest.
What I mean is the sectors are taking their time to be on the high, we first started the year with energy sector, then consumer, then financials, then tech and now probably industrials. So this goes round and round and if you are diversified in all sectors, you probably have a less volatile portfolio and if you are skewed to one for example tech, then you are in for a roller coaster ride and if you are unlucky, you might have kicked yourself out of the ride when it was rolling down and cry in tears as it peaked again later.
Frankly, I take less concentration on the investment portfolio side and just let it ride with the wave while just finding any new opportunities on the lows to make a bit of new entry. If you take on great companies, there are no real reason to fret it it takes a little breather down.
On the trading side, looking at new opportunities to strike with more volatility, but at the moment, things seems to be clear skies. Hopefully, some rain or even better thunder storms comes by to stir up some mud for some excitement on the ground, perhaps a bit spewed blood would be even nicer.
NDX
Last week we did see some retracements in the early part of the week but things recovered thereafter. NDX was probably ended up where it started and I hope you guys were not pranked by it to offload positions or even stopped out before it retraced back. 😭
The great thing on such moves was the earlier call premiums just expires worthless while giving opportunity to roll at higher strikes to give more upside room for the stocks. We tend to sell some calls in situations when the up movement is not that intact on bullish positions mainly to protect temporary downside moves and also to offset theta decay of the debit trade.
Should the NDX breach the previous high in the coming week, there may be opportunity for more higher highs to continue. That will bone well for bullish positions that you may still have on some of its component stocks. FB may still have some potential to go back to 370+ while PYPL have a lot of upside room if the NDX runs up above previous high level.
"All boat rise with the tide"
Sad thing is the dumping of Chinese stocks continue with the funds and these stocks are going nowhere but down. It would take just a slightly positive indicator from the "CCP" to fireup again these stocks. Nothing short of that will help them recover for the time being. Because the market would have for now, taken the indicator that the clampdown would resolve in the next six months as per what the Chinese Government indicated it will take to tighten the bigtechs operations and governance.
CSP PORTFOLIO PERFORMANCE (UP 13.2%)
(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, the biggest gainers was PLTR and GDRX. PLTR has shot up by more than 10% after its earnings announcement and closed on Friday at 24.90, a level we have not seen since June. Whilst we were assigned since February, we were selling monthly calls to generate more income for this stock. Todate, we would have accumulated almost half the value of the stock in premium alone. That's like getting the stock at 50% discount or more.
GDRX also had a good runup last week after its announcement, up from 30 to 37 all within a week. As like PLTR, while taken assignment since March, we had some opportunities to sell some calls in between to earn some additional premiums.
As said, this is one of the best strategies ever to generate consistent income even if we are temporary assigned with the stock, we can continue to generate income while waiting for the stock to recover back to the assigned price and then decide, if we want to let it call away or just trade it up all the way until it is taken away automatically when our calls are breached. That way, we make both ways the income and also the capital gains from the increased stock price.
Those assigned China stocks would potentially be temporary setback in the portfolio also. Only time will tell but again like PLTR and GDRX, we will take on any opportunity along the way to earn more premiums.
REPAIRING BULL SPREADS...
One of the best concepts in selling options is "repairing of trades". You might wonder, a "trade is a trade" and unlike a car, if it is damaged, you can send it to a workshop to repair it but how do you repair a trade?
Well, the concept is simple...there are few form of trade repairs depending on which strategy. For bull spreads, the simplest form of repair is rolling in time. What happens is when our short put spread strike is breached, we can extend the time by rolling the expiry forward to an extended date, allowing more time for the stock to recover. That is of course we still have a bullish view on the stock and deem the price drop as a temporary movement.
Of course, the best scenario on trade repair is that we can get a credit from rolling of the bull put spread. This not only allow time for the price to recover, it will also reduce our risk as our max loss is reduced with the new credit received.
The best time to repair a trade is before the strike is breached or if the trade is close to being breached around 21 days till maturity. If the price is breached, there may be a possibility that the credit received is lower or you might even need to pay to roll the trade, which is not optimum.
The other decision is if there is a possibility for the trade to rebounce within the remaining 21 days till expiry. If we leave the trade unadjusted, with fewer days till expiry and if the strike is already breached, then the more difficult for us to repair or roll the trade with a credit and we may just possibly let the trade play out till expiry.
Above was a typical repairing trade of a Bull Put Spread on GLD (-170P/+165P) by rolling in time for price recovery. The price of GLD had dropped significantly to breach the put strike of 170 and even went below the lower put strike of 165. As the price was deep in the money, the rolling would have cost a small debit each time, not optimum but would be lesser than the max loss assuming we leave the trade to expire ITM. For this Bull Put Spread, we rolled in total 8 times, before the price recovered above the 170 put strike and the total loss incurred was 133 instead of a max loss of around 370.
As long as it still makes sense to roll a trade, you can perpetually roll it forever as long as you still thinks the price can recover and as long as you don't put up a higher risk to the trade. To think of it, it was probably the same idea one of the treasury head of a multinational company I knew back in the days, rolling his MYR/YEN trades for years rolling it to tens of millions losses hoping one day it will become OTM, but unfortunately I did not think that went well because it was advised by the bank which had other interest as usual.
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 9 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
Remember to join us every Tuesday 7.30 pm on my Facebook Page. Follow-us so you will be notified when we go live!
Visit and follow us at our Facebook Page for more contents!
Access here >>Facebook Page<<
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.