Options Trading Newsletter - Issue #26
100 DAYS!!! What will you do if you are given a second chance...
100 Days...
I remember this 100 days thing very well. In any corporate transaction which I did in the past when I was in the investment bank back then, it came very often after a takeover or a merger.
Basically, it was the 1st 100 days the new management is tasked to turnaround or change the company being taken over especially if it was a loss making company which the new management is tasked to turnaround.
This is a series of action or plan that needs to be taken to improve the performance or initiate change for the better. Often, how the new management is measured is the turnaround changes that can be successfully implemented, be it operational change, processes, profit improvement, head cuts, cost improvements, behavioral change on new incoming culture adaptation or other areas targeted to improve the business overall.
This "100 Days" will also work for anything new that you venture or implement. For example, if you start an exercise regime, you target to achieve something in the 1st 100 days, because if you can be successful then the rest of days after this 100 days would be a breeze and become a norm to you in your daily life.
Also, as new Traders, what you do in the first 100 days of you taking on Trading also makes a difference on how well you perform in this Trading business. The more effort you take to learn up this skill and put it to work for you the better chances you will succeed in this. Not to say if you take longer you will fail but in reality you will not need more than 100 days to pick this Trading skill up which will help you start generating consistent income, so why waste time when you can do this fast.
Coming back to this 100 days concept, I hear that in some countries 😂people have 2 chances in their 100 days! If you failed in your first 100 days....take a second 100 days.... Well, not to say it won't work but you better be doing something different in your second chance for this 100 days, or else you will just end up the same, which is failing miserably.
"if you don't change direction, you will end up where you are headed"
MARKET UPDATE
SPX - The Great Wave....
Come to think of it SPX is like a surfers paradise....you wait for the wave up and then paddle back home and then paddle out and wait for another one. One of the great surfer movie I saw was "Chasing Mavericks" where a 15 year old boy wanted to ride a mythic Maverick surf break, one of the biggest wave on earth. He had only 12 weeks to train and conquer that wave...
What if I told you that you are now witnessing the biggest and longest wave in the stock market? What will you do to conquer or profit from it? Jay trained 12 weeks so he could live his dream conquering that giant wave...
What are you doing now to conquer this giant stock market wave so that you can live your dream? Train hard if you had not invested in the market or still sit by the sidelines watching other people profiting?
Last week, we saw again surfers riding the wave up to another all time high of 4513. This is a real surfer paradise, even better than those in Australia. The trained surfers are enjoying the surfs up....while there are many undergoing surfer training to try to catch the next wave...
If you looked at the past many retracements, it ended up with a higher high...so what do we expect to see next? Well chances are still there for this to continue and until we see a different trend...it's to the beach and paddle your way out there to catch the next big wave!!! SURFS UP....🏄
NDX
As we said last week, the US Market is a stingy lot. But not that stupid after all, remember 2 weeks earlier they retraced till mid week by 2%? Last week, they took back 4% from the 2 weeks low to reach all time high of 15447. I guess the market also knows to play the trading game risk 1 win 2. 🤣
Earlier we asked to monitor the 15154 level and after 3 failed attempt to breach, it successfully penetrated it with a strong 2% level above this resistance level.
My targets on FB of 370 has also been breached with a strong run up last Friday of 8+ to this metaverse stock. Although the stochastics are above 80, I think with the NDX running high, it can still be surfs up for FB....
As long as the market sentiment is still positive, strong component stocks should ride with the overall trend being the favourites.
It was indeed a revival for many bigboy China stocks. On Monday, we saw stocks BABA, JD, Bidu, Tencent and KWEB had a strong rally up. Apart from BABA which lost most of the gains till end week, the rest is still up for the week. It is indeed a good timing, as I had many of these positions since months and waiting for the longs to recover. I had already earlier repaired the trades by letting the protective puts go, taking a big chunk of profits off and now with the price coming up, the short puts seems to be recovering from the losses and hopefully it will be going OTM on expiry or if not, I can always roll it in time to buy more time. That's the great thing of being an options seller, you can always have the possibility to repair your trades. (See our last 2 newsletter on repairing trades)
CSP PORTFOLIO PERFORMANCE (UP 13.5%)
(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 saw a recovery of +9% within a week in the portfolio with the improvement of China portfolio components and also the Hong Kong ETF KWEB which was badly hit in the past weeks. As the core strategy of the Income Portfolio is to generate income through strong component stocks, we would not to be afraid of a bit of volatility during the down time, where you may be assigned some of these stocks or forced to roll the trade in time for a price recovery.
We may still see for possibilities to enter into new trades on some ETFs related to the China big boys if the price levels and premiums are conducive.
Our portfolio is quite full at the moment but we managed to stomach some additional trades for the past 1 to 2 week on PINS and TWTR. PINS had gapped down after its last earnings and now seem to have bottomed out at 54. Having an opportunity to place strikes below this level seemed too tempting to be missed.
TWTR which has since retraced around 16% from its high also saw some recovery although there was no clear sign of bottom out apart from the recent retracement up, putting a strike by another 10% below current price seems safe enough. It is difficult to find CSPs for stock below 100 nowdays as compared to a year ago as prices just keeps going up and never down. I still recall earning monthly premiums last year on BAC which was only trading at 20ish back then and today it trades at double the price.
Probably it's time to review the portfolio to cut down on number of stocks and go on higher priced stocks with lesser trade count. We'll see if the opportunity pool dries up before we take that step as a last resort because diversity is also one way we derisk our portfolio.
TAKING RISK....
Over the weekend one of my student asked me this question. Isn't selling a naked put a most risky thing to do in Options trading? And yet, when we train our traders we start them up in the fire pit...
Well there are always many ways to train people. I am an avid war movie fanatic. One of my favourite war movie series is the "SEAL Team Six" where it depicts the live of a few hunky chunk going to do their rounds shooting off the Talibans. How did they end up being so good in what they do as a Navy Seals? Did they go through a lame training or were they put under live fire that made them what they are today?
So my question to you guys is, do you want to be trained the way of the Navy Seals or some other soldiers who put up a white flag when the Taliban shows up?
Same as in Options Trading, people don't like to be credit sellers because they thing they are the risk taker and those who are paid less and lose more in trades. If you really go deep into trading Options, the real success of Option Traders who consistently make money are the sellers and not the buyers. It is easy to do a debit trade or buy options. It is difficult to sell one or at least if you do not understand what risk you are taking in selling options, then don't sell at all.
So this is core for sellers, we:-
understand exactly what kind of risk we are getting into when selling;
we know exactly what we are paid for it;
we know exactly what probability of win we have on trade entry.
As opposed to buyers, who:-
only know how much max loss they will get in a trade;
do not know how much they will earn in a trade as it depends if the price goes its way;
on entering the trade the probability of win is 50% or below, meaning on onset, the odds are not in favour already.
So what's the conclusion here? By sending people to the "Credit" pits, they start to understand how to manage risk, understanding probability, understanding that trading is not a WIN big on few trades but a long term game of income generation and consistency. Once you learn this, your Options trading foundation will be strong and then doing the debit trades will be a breeze and even help you gain more because you are as strong as a Navy Seals and a fearless Options Trader! ⚜️
In WAR, your only chance of survival is if you are trained in the best way...
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 10 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.