PLANNING AHEAD...
As we head towards the end of 2021, it is always a time of reflection of what we should have done or what se shouldn't have done, isn't it?
Well the past is the past and we can only reflect on it and there is no use of talking over spilled milk. What we can do is to use those things as a lesson and move on and plan for a better 2022, the one which can be better for us as far as health, relationship and financial is concerned.
As we still have around 2 weeks ahead, I would think it is already a good time to start to set goals for each of these pillars and also a plan of execution.
As far as the S&P 500 is concerned, it has advanced around 24% returns this year although with many ups and downs, more than 10 less significant retracements throughout, which is not a too bad year. However, many would have experienced less than market returns so far because of stock or portfolio diversification. If your portfolio was concentrated in hot 2020 pandemic stocks, probably a miserable year if you had held on to those going into 2021 as many had given up significant of the earlier year gains and if your stock portfolio is on fundamentally strong companies, returns should not be too shabby and over time, the yearly returns should average out and there is no real need to cut off overperformance or underperformance.
The same goes for stocks for the China market which has underperformed against the US market but apart from regulatory issues, most business fundamentals remains intact but some may require slight adjustments here and there to comply with the vision and directions of their leaders.
So take time to assess your portfolio, reorganise to derisk, rebalance and identify potential sectors or undervalued stocks to capitalise for the coming 2022!
MARKET UPDATE
SPX
The market is always under constant manipulation by the news. Bad news spark fear and market selldown. Last week, we saw the market selloff significantly on fears of spread of Omicron throughout the United States and many other countries that this virus will become the dominant virus around.
When the selldown is heavy enough and the market feels that prices are cheap enough then the quick recoveries happens, 3 big days of drop and it takes one day to reach midpoint of what was loss. But there is no real great timing that we can predict when will the downdays stop and when will there be a bounce. We can only look at charts or have our own level of comfort of what are the kind of prices we are willing to pay to enter a trade and if it fails further, then if we need to cut our positions.
So far, from the whole year's of events, the SPX retracements are fast and shallow and on a longer term, the market is still continuing its bull run however many years extended people may say it is, the bull still wants to be in control. It may well seem that the market will close in the next 2 weeks with yet another ATH record above 4744.
NDX
NDX bounced off support at 15544 last week and continued to rally up this week. There seems many fund managers and investors who need to cover their books with a good report card and that will of course be beneficial for us as we hitch a ride with them towards the year end.
From the price action of NDX, it seems that the double bottom reversal will continue as it had also closed above the 50 moving average line with a very bullish pinbar. There might be some big intraday movements, but overall we still see NDX having potential to run up a bit more albeit, facing resistance again at 16400 levels.
CSP PORTFOLIO PERFORMANCE (-10.5%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)
As the market continue to be volatile, the portfolio returns are returning back to the earlier week's state but we continue to roll the positions for as much credit possible.
When a CSP trade goes ITM, our position will be as if we are holding stocks. That's the exact fundamental principle of the strategy which we should not forget which states that, this strategy is deployed on stocks which we want to own at the prices which we are comfortable to own. At times when the stock prices are moving along our direction or not moving, we are generating the premiums and at times when the prices goes against us, we will be in positions as if we hold the stocks, as we get hit by the unrealised losses due to the increase in the options prices.
As long as you know how to manage your positions and the selected stocks can move back above your strikes, the monthly or weekly measurements of the portfolio returns are just temporary numbers and over the long run, this strategy should yield average targeted returns of 20+% a year if deployed correctly.
Embed these in your head and you will be able to sleep soundly everynight knowing that over the long run, you should be doubling your money every 4 years or so.
PROTECTION ON DOWN DAYS...
Market is not one way up and can always be subjected to some volatility and some down days, even months. As these may be temporary, how do we protect ourselves from losing money on our long positions?
Buying puts are the easiest way to get protection but is it the most efficient way of hedging or protection? It really depends on many factors and what are we protecting. Are we protecting an entire portfolio or are we only protecting single positions?
Some fund managers allocate certain % of its portfolio to hedge and the hedge positions would be open most of the time. Of course, these are one protection strategy but really, such strategy is proven to be only a waste of money as most premiums used for such hedge will only expire without even being used or efficient to protect huge outlier movements, ie. above standard deviations/expected moves.
The other factor we need to consider is also how long will these down market days be and historically down days are only few compared to updays. So short term ad hoc protection may work better at times or having very cheap protection structures. One way, we can do this is to do Put Back ratios. It involve mid term expiry options of around 2-3 months, by:-
#1 - Selling one Near ATM Put
# 2 Buying 2 Put at Lower Strike Half the Price of #1 (ie. the Put Sold will finance 2 Put Bought)
Just need to ensure that the running P/L Theoretical line is above the zero profit line. Before it dips below, you need to close the trade and renew another backratio. You can simulate in the risk profile, by when the dip will come in, roughly the trade should be closed if maturity is less than 2 months (please check risk profile).
Checkout Traders Talk, where we show and example of this type of cheap hedge. No upside risk, huge protection if price falls a lot. Watch from 30.00 minutes on.
FREE iPhone 13 Challenge
We maxed out on this one as AAPL just won't budge down. One of the biggest risk on Iron Condors on strong stock is to manage upside. As strong stocks can go higher and higher, so to wait for it to retrace back might not even come. As compared to the downside management, strong stocks can eventually recover from the downmove and if we roll or repair the downside, eventually we can come out of the tested downside.
I think we have come to the end of the iPhone 13 Challenge and although we did not make it to our target, we learnt some great option strategies.
#1 Jade Lizzard
#2 Bull Put Spread
#3 Bull Call Spread
# 4 Iron Condor
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?
We had a great topic and so much insight on trading was given out.
Listen to Traders Talk Series 27 if you have not done so. View Past 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!
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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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