Options Trading Newsletter - Issue #160 - CLUTTER... [Options Today - IRON CONDOR ON MICRO CRUDE OIL FUTURES]
Clutter...
Clutter…
Over the weekend, I took some time to clear off some furniture from my old house, which I put up for sale a few months back. Having lived there for more than 15 years, you can imagine how much stuff was accumulated throughout those years. While living there, it never felt like there was too much furniture or other belongings, as I got used to seeing them every day. Even after we moved, we left some of the furniture behind because they were worn and didn’t fit the new place.
After several visits by prospective buyers, some even commented and asked if the old furniture would be removed, as it didn’t look aesthetically pleasing. Without a doubt, this hindered my ability to close any sale for months.
With a quick Google search for disposal services, I texted one that confirmed immediate availability. Within an hour, a 2-ton lorry arrived with several workers who swiftly went into action, removing everything from the house. The lorry was filled to the brim, and I had to pay some extra fees as they too did not expect so many things to discard from a smallish house.
After they left, the scene at my house was totally different. It was decluttered, and the space seemed so wide and spacious, something that will appeal to prospective buyers. Without a doubt, I could confidently ink a sale quite soon now that the place is clean and without clutter.
Reflecting on this, life can sometimes feel cluttered with thoughts and worries. It’s like a house full of old furniture. To clear your mind, start with one worry at a time. Take a few minutes each day for quiet thinking. This is like removing one piece of furniture each day. And before taking on new tasks, make sure you have room for them in your mind. Just like my decluttered house, a clear mind can make room for new opportunities. Remember, a tidy mind leads to a tidy life. Happy decluttering!”
“Clutter is not just the stuff on your floor - it’s anything that stands between you and the life you want to be living” - Peter Walsh
SPX (5204)
SPX is down 50 points for the week, something which we have not seen for months. The drop came about after comments from a Fed Member that expectation of rate cut may not even come in this year. This could have been worse but Friday we had made back quite a bit of the drop on Thursday. Market shrugged off the strong labour market reports and recovered its grounds on Friday. Services employment came in 303k versus expected 202k.
Earlier, the expectation of a rate cut was in March, then shifted to June and now, more likely to September as the June rate expectation came below 50% last week. Is market finally realising that what J.Powell (Fed Chairman) said is true, that rate cut is not imminent and we start to hear the same signals from other Fed members. SPX dropped below 21 Daily moving average on Thursday but recovered above on Friday. We will continue to use this as a short term indicator of the price action direction and as a first sign of possible direction change.
The commodities market oil and gold is surging due to the tensions in the middle east and that ain’t going to help in the fight against inflation and could deter an earlier basis for oncoming rate cut decisions.
VIX indicator has also creeped up for the week. We will see if it sustains at this level or come back down this week. VIX has a negative correlation with SPX, higher VIX means a lower SPX.
This Wednesday the CPI will be out and Thursday PPI, both used as an indicator and data point for the Fed’s decision on interest rates.
Trading range for the week is 5100 to 5250.
NDX (18108)
NDX shed 85 points for the week with the lowest reaching 330 points if not for Friday’s recovery. The daily moving average dipped on the 50 MA and bounced off. We will need to see if this continues to hold as drops in NDX is always more severe and fast as opposed to SPX.
Lets see if market will face reality when CPI data hits this Wednesday as that will likely give more data driven results for the Fed’s policy on rates which is more sensitive for the Nasdaq market. We see for now, the resistance of 18400 with support at 17500 (likelyhood of filling this gap up level).
Trading range for the week is between 17600 to 18400.
HANG SENG INDEX (16723)
HSI breached 17000 level just for a while and moved back below the trend line by end of the week. Nevertheless, we see Friday’s price action as possibly bullish for this week from the long wick formed on close. We exited part of our longs on the move up and will continue to put on HSI on dips and exit on spikes up along the channel.
The next level would be 17200 with support moving slightly up to 16600 now.
OPTIONS TODAY - LONG JAPANESE YEN FUTURES
The June Yen futures continue to trade sideways and its tries to move up has failed on back of the strength of the US rate. The possibility of a delate rate cut on the US side is providing support on the US rate against YEN. We still continue to hold the trade watching closely that it does not break down below 0.000065. For protection, we may add some call spreads during the week, lets see.
OPTIONS TODAY - IRON CONDOR ON MICRO CRUDE OIL FUTURES - JUNE24
Crude oil futures has been going up for the past 4 months from a low of around $69 topping to around $87 last week. It is almost at June 22 high of $88 and may soon see some resistance upward, although many calls that it may go up above $100. In any case, the resistance based on previous high is just slightly above and we see possibly of it slowing down the run up soon. We take a resistance at $88 and the next support to be at $69.
In any case, we can turn to a neutral strategy such as Iron Condor which works on an upper band and a lower band of price to achieve profitability. As long as the price stays within the expiry, the trade will be profitable.
IV Rank of Micro Crude Futures is around 25 which provides reasonable premiums for selling strategies such as Credit Iron Condors. The expected move for June24 expiry is +/-$7.82, MCLN4 is trading at $84.39 which gives a expected movement band of between $76.57 to $92.21.
Trade Entry
Sell a Call at $92 and Buy a Call at $95 ($3 wide)
Sell a Put at $77 and Buy a Put at $74 ($3 wide). Although strike $77 is above support of $69, we expect that crude oil may not drop steeply within the next 60 days and may continue to stay elevated.
Total credit collected $96, Max Loss $204, Buying Power $60.
Trade Management
'The trade has a period of 67 days, no real management is required but we monitor the price action if it hits the upper and lower short strikes of the trade. Closer to expiry, if trade has less than 21 days to expiry, we need to roll the trade in time if the price challenges the short strikes or gets in the money (ITM) at either call or put side.
If the trade reaches 50% profit of around $50, you may consider exiting the trade. Possible also to leg out of the trade if either side (Bear Call Spread/Bull Put Spread) of the leg leaves an extrinsic value of less than $0.05.
OPTIONS TODAY - STATUS UPDATE - BEAR CALL SPREAD ON SPY
SPY closed down for the week to 518 from $523 last week. The trade is in slight profit at the end of the week, more on Thursday but offset on Fridays move up. We will likely take the trade off this week to avoid any last minute bullish move by SPY. The expected move for SPY till expiry is $10.34, close to our short strike of $530. So lets not take any chance and exit on any huge down move during the week. Likely on Tuesday, in anticipation of CPI on Friday, there may be some profit taking selloff possibily.
OPTIONS TODAY - TRADE STATUS ON BA RATIO SPREAD
BA closed down more than $9 for the week. Despite this, the trade profit only went down slightly. Because the trade is currently in the profit zone and we only need price to be at $180 for max profits on expiry with the lowest price of break even at around $174. The huge move down last week is positive for the trade as that could spark some buying interest at lower prices, hence BA holding a bit sideways for the week.
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