As Easy As 123… [Options Today…Gold Trade]
It’s our 123rd Issue of Options Trading Newsletter. Thank you to all our readers who had supported us this far, over 2 years now. Our first issue was in March 2021 and we started our newsletter by using Canva!!! We didn’t think that we had so much to write on the same topic of “Options Trading” but we did somehow till today. Below was an extract of our first Issue in March 2021.
We’re glad that you find it interesting and continue to read our newsletter weekly. We know who you are and we are really appreciative 🙏.
Was it easy for us? Not at all. There were times that we had no idea of what to write, there were time when we were too tired to write, there were also time that we wanted to hang the towel… but we continued because we know someone out there is expecting us… and it’s also kind of fun to put thoughts into words. We also take this as our life journal, sharing our thoughts and journey together with our readers.
The thing we got to understand is the more difficult it gets, the more easy it becomes, the more problems, you have, the more solutions comes out. It’s better to go through a tough life because you can survive it. Conversely, if you had an easy life, you might not survive when things get tough. Do you want to breeze through life as easy as 123 or take the path of life few steps at a time…?
"Difficulties in life are intended to make us better, not bitter." - Dan Reeves
SPX (4536)
Earnings season has intensified this week with some started to show misses. SPX breached 4512 level but started to weaken after some bignames started to make some earnings misses. SPX is trying to reach all time high again but this round of earnings is more critical. Take care your long positions and if you don’t want to sell, just do some covered call to generate some premiums in case prices falters.
Unemployment claims kicks in on Thursday and this gives an indication on the faltering economy and more so, the post effects of the rate hikes are now showing up as businesses could not withstand the increase in rates to the peak of 5.25%.
More earnings this week. Let’s see how the remaining Magnificent 7 (MAG 7) fare. GOOGL, MSFT & META is up this week. For the last week MAG 7, the prices has not been so good as market expects to take some profits off watching TSLA shave 7%+ post earnings.
4500 is still the level to watch if it holds. 4600 the next break-up.
The trading range for the week is between 4500 and 4600.
NDX (15425)
NDX gave up almost 1% (139 points) for the week after earnings misses on some extent by NFLX and TSLA. As said, this quarter earnings are important factor to confirm the bullish bias of corporate expectations from the last round of earnings season. It what they said does not hold, we could see NDX cooling down a bit.
This Wednesday is the Fed Fund Rate announcement, which could see another hike of 25 bps, hopefully the last one. The Fed Watch estimates 99.8% hike happening…so market is already priced in for that. The only thing is the statements coming out of the Fed which I doubt will be anything different from the past pattern, “data dependent”.
Bearish pinbar on the weekly. Watch 15265, if supports hold. If it breaks down, we could see NDX coming back to 15,000 levels.
The trading range for the week is between 15250 and 16050.
HANG SENG INDEX (19075)
HSI failed to push higher last week and came back down to 19000 levels. We could see it coming down a bit before trying to run up again. We posted last week that we are in the lookout for a retracement back to 18700 levels for MHI. Today, MHI opened gapping down but 50 points shy from our target entry. With US earnings season, market volatility will be high, so there’s still some possibility the negative effects spew over and brings HSI down lower for the week. Also, the rate hike coming Wednesday, so please be a bit more patient and let it come down more. We may also shift our entry further down to 18400 level if US Markets is in red on opening today.
OPTIONS TODAY [Gold Trade]
As earnings season is in, its not a good time to trade stocks as prices could be erratic depending on the outcome of the earnings and their forward statements. Buying calls/puts will also be expensive and even if you get the direction right post earnings, the decrease in IV may also offset the effects of price movements.
So let’s get back into some more slower but highly profitable bread and butter strategies on commodities like Gold. We trade the gold ETF, GLD. Price wise, GLD has been on the move up from the lows of 176 end June. We could see price taper off as it hit resistance 184 last week and bounced back, closing at 182.18 last Friday.
Our GLD Play
We would take a trade with no upside risk using once again the Jade Lizard Strategy. We are using time to our advantage in this current trade as price trend is short term bearish after one month of rally. Stochastics is above 80 level.
As there are 2 strategies within a Jade Lizard = Naked Put + Bear Call Spread, both strategy would profit from different direction. Naked Put needs price to go up and Bear Call Spread needs price to come down.
The current price action would benefit the Bear Call Spread but not the Naked Put. So you might ask why enter now as Naked Put will go into losses if price comes down.
Since, Jade Lizard has no risk to the upside, we only need to be comfortable if we can accept the downside risk, ie. the Naked Put. Entering a naked put below the previous low of 176 is our first protection. Secondly, we need to enter a short put which is above 1 Standard Deviation move on the expiry chosen. When price moves down, our Bear Call Spread will go into profit, protecting somewhat the downside movement of GLD price, not a lot but by the time GLD reaches back down to the previous lows, we could see the extrinsic value of the Bear Call Spread, almost depleted and we can then leg out of the position by closing only the Bear Call Spread. Exit the Naked Put when extrinsic depletes or expire OTM. Manage the short put separately if it goes ITM.
Trade Entry
Sell a Bear Call Spread $1 wide, we choose 15 September expiry with 54 days. Sell 184 Call, buy 185 Call for $0.42.
Sell a naked put which generates at least $0.58 premium to cover the max loss of the Bear Call Spread. ($1 wide less $0.42 = Max Loss $0.58). In this case, we choose 175 strike for $0.64 premium.
Total premium is $1.06 with buying power $3000, 3.5% ROI in 2 months.
1 standard deviation move is +/- $6.25. Our lower short put strike is below this and Delta is at 16.
Trade Management
If price comes down, watch for the extrinsic value of the Bear Call Spread, if less than $0.05, we can leg out on this. If already close to expiry and prices has moved far down closer to the short put strike or more than 1 SD move to expiry date, we can also keep the trade and let it expire OTM.
If price moves up above 184, no action is required as there is no risk to upside. We can close the trade with profits if we do not see possibility of price retracing down below 184 till expiry.
On naked put side, no management required unless it goes ITM on expiry, you may roll the trade to extend duration for it to go OTM. As 175 is support, we see likelyhood of it expiring OTM or even ITM, it would go back above 175 if we give sufficient time.
Generally, Jade Lizard we need not really manage the trade. If we see price action hitting upside, we may close the trade early and take in some profits. Although, there are no risk to upside, if we keep trade till expiry, we will only get a profit of $6 for this trade if it hits above $185, so any profit higher than $6, it’s better to close it.
As seen here, this trade has 86% probability of profit.
Conclusion
Combo strategies like Jade Lizard is good way to generate premiums on both sides of price action and also use time as a way to generate income. Let the Theta decay work for us $2 a day of premium will get you a good cup of coffee everyday!
TRADERS TALK
Some of you has been asking where did our show go? We are not live as often but, we have you in mind. We are working on some new contents and hope to share soon.
But if you have any questions, send us an email @ support@mystlework.com.
Review our past traders talk. Let more of your friends know about our show and let them benefit also. View Past Traders Talk here.
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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.