EASY TO MAKE MONEY FROM STOCK MARKET...
This is a statement I always hear but in reality there is half truth in this. In fact 95% of people lose money from the stock market. Then why does people say it is easy and when most people lose money?
Let's break it down. Firstly, the stock market is like an oasis in the dessert. It is a place of resources (water). But really, how many people want to stay in the dessert beside this oasis? Not many right? People would probably want to stay in colder climate, air condition and where water can just be obtained by a switch of a tap. That's the first thing we conclude is that although we know there is abundant of resources at an oasis, not many people want to go through getting resources this way.
Then we speak if it is easy to drink from this oasis? Few ways to do it, one way is just to walk over to the side of the oasis and scoop up the water. It is the most easy way and you could practically quench your thirst every time you go there. Same with the stock market, it is easy to go into the stock market, especially when market is bullish, close an eye and buy any known stock and you will make money.
But market is going to be volatile over the long term, not many people using this way will succeed because when market is down, they will probably lose more than they have gained. Same thing in the oasis, you might get stuck in the mud or get bitten by the crocodiles (are there crocodiles in an oasis? maybe not) or get poisoned by contaminated water. So really, the easiest way may not be the safest way or at least consistent method to make money over the long run.
So where are we getting here? Firstly, the fact that an oasis is a good place to stay does not result in everybody wanting to go there. Only a select few will want to permanently stay there. The same for the stock market, everybody knows this is where the money is made but why don't everybody get involved? First thing is of course we are not trained or brought up to make the stock market as a main source of income. We would want to go the more comfortable way to get a job and a fixed monthly income. Who is trained or aspire to stay at an oasis right? No one... But for those few who knows that the abundance of resources/wealth can be generated from the stock market, they will want to be there... ie. stay at the oasis. Only with knowledge and understanding, they will break away from the conventional way of generating income.
Secondly, the question why not all people succeed in the stock market? It boils down to how you extract water from the oasis. You just don't go scoop it out with a bucket wading at the side of the pool... You need to create a pumping station to pump out, filter and then store the water. The same for the stock market, you don't just go trade blindly, you will need to have proper knowledge, create a system and generate profits the safe and consistent way. One of the main reason why people fail, it is because they do not have a system to trade properly. And whatever system used is to create consistency.
When you become consistent, that is the time you will get your water at the switch of the tap....
MARKET UPDATE
SPX
The market took a slight breather till mid week before it exhaled its wrath again. SPX went up 33 points on Friday to close at 4682. All time high was 4718. Though I would love to see it pulling back to 4500 level before continuing its wave up in the next year for us to lock in one more round of price retracement or trading profits before closing the year.
NDX
NDX closed Friday also with 167 points up to close at 16199. The momentum was quite strong as NDX opened up high early part of the morning and sustained its positions mostly throughout closing.
The MAANG stocks all recorded significant positive jump with META (FB) going up 13 points (4%). The buying on the dip seems to be back quite fast this round and seems like everyone is chasing for FB to run up 4% out of nothing in one day. Lets see if it holds. We still have some spreads on FB which will work well with the price higher.
We have some neutral positions on AAPL with higher buffer on the upside and if market continues up, we will still be safe. AMZN we could not get filled at 3300 levels for bullish credit spreads.
NFLX and GOOGL is too far out and we are not doing any positions on those for some time now.
TSLA has been down almost 20% since the tweet to sell down some stock by Musk. He has since sold 6+ million shares and another 10+ to go. The question for me is if the owner is also taking the opportunity to cash out 10% of his shares, what are the rest waiting for? Probably they joined the sales party and hence the 20% drop. I would say, 900 level would be a holding level if it continues to drop in the next week.
CSP PORTFOLIO PERFORMANCE (UP 27%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)
This week the short term expiry of the positions of KWEB has significantly pushed back the portfolio to its high. In the previous week, KWEB has gone significantly ITM due to the pullback and as a result, we rolled the position to another week. When rolling ITM Puts, we practically buyback a higher price expiring put realising a loss and at the same time selling another ITM put collecting an even higher premium than the closed trade. Net net, we still earn additional premiums for the additional time committed in the trade.
When the new trade expires worthless in the current week, the loss in the previous trade will be neutralised and the net premium earned will be the initial premium plus the additional net premium received on rolling.
In trading CSPs besides earning premiums, at times the CSPs can really act as if it is stock especially if it is ITM. Means the ITM CSPs can go up and down based on the stock prices. This is of course driven by the Delta as close to expiry ITM Puts will have Delta closer to 100. So our position, will be the same if we take assignment of the stock or don't take assignment and continue to roll the trade in time.
KWEB Price Development Past 2 Weeks. Getting out of ITM Naked Puts by Rolling In Time @ Strike 51
STRATEGY BASED TRADING WITH IVR
If you recall in our Income Generation Framework Lesson 3, we spoke on IV Rank (IVR). IVR indicates whether Implied Volatility (IV) is high or low in a specific underlying based on past year IV.
IVR Measurement
Low and High IVR
The above diagram shows that an underlying has a lowest and highest IV range of 20% to 40% for the year. When the underlying's current IV is at 30%, it means that it is exactly in between the IV range of 20 & 40 hence the IVR = 50%.
In trading IVR is used as a determinant for which kind of strategy is better to execute on an underlying. ie. Long Premium (buying options) or Short Premiums (Selling Options).
The benchmark to determine what IVR is high or low is @ 20 IVR.
Low and High IVR
Example of IVR based stretegies
In addition, the exit rules is on the opposite side of the entry rules. ie. on Long Premium trades, we enter during low IVR and exit when volatility expands. When volatility expands, the premium is higher hence, we can exit at richer premiums. On Short Premium trades, we enter when IVR is high and exit when volatility contracts hence cheaper to buy back the options.
Strategy based trading with IVR will result in capital efficiency which means each capital traded will give you the highest buck per trade so you don't overpay or undersell your options.
FREE iPhone 13 Challenge
We executed a new strategy this time round on Trade 4 which is a neutral strategy using Iron Condor.
Iron Condor comprises 2 vertical spread which is a Bull Put Spread and and bear Call Spread. We aim to collect a premium at least 1/3 of the width of the Iron Condor strike. In our case, the strike width is $5 width and 1/3 would be a minimum of $1.33. We sold our Iron Condor at $1.60. We managed to achieved this because we sold a higher Delta short strike for the puts while leaving more buffer for the upside by doing a lower Delta. Although, we are neutral in the trade, we are also trading that AAPL stays within a range of stock price.
In our case between 145 to 160. At trade execution time, AAPL was trading at $150.70.
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 22 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.
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