Perception
Perception can be deceiving at times. Sometimes we perceive based on what information we have at the time and this could evolve with more information coming into the picture. Just like what an AI learning is doing, it is learning everyday and each day more information comes in to help it understand or validate things.
I am not sure how an AI will validate whether the facts they state is true or not but it all also comes from patterns and knowledge that it has learned. If you feed it enough with correct knowledge, it will tell you the correct things but if you feed it with the wrong misaccurate information, it can also believe it is true. That’s why AI can be very powerful and at the same time can also be destructive. It is like a sponge, feed it with good and it can become good, feed it with evil intent, it can also go to the dark side.
Coming back to real life, how do you validate a perception of you on someone? It is also similar to how an AI validate an information, from patterns and knowledge. It is from the pattern of action that someone does and information you have. But be mindful that you may not have all the information to validate your perception on a person and this may come over time. However, actions can be validated perceptions. The action that someone does now can validate what kind of person one is. It’s quite complex in real life because not all actions can be known to you, some runs behind the scene but all new information you find out have to be consistent and if new information is not consistent from the past occurrence, then you can’t use that to validate your perception of you on the person. The model we have in how we live life is what we power the continuous AI learning and set it to the right path.
Sometimes, things happen to mess around your perception on someone. You will only have to think deeper to change perception into facts. It is sad if you are perceived wrongly, but again, you don’t have to prove anything, just do what you believe is right and eventually “patterns and knowledge” will reveal itself.
"Perception has the power to shape our world, but unraveling its illusions reveals the simple truth."
SPX (4282)
SPX continue to rally 1.85% for the week and it seems to be trying to hit the 4300 mark. The jobs report came out than expected starting with the ADP Payroll on Thursday which lead the market back up from a pullback early week after the holidays. The Non Farm payrolls on Friday, was the one which continued to pull it up back above ending the week at 4282.
Whilst strong job additions, is showing that people are still getting jobs, don’t forget that there are thousands who have lost it after the tightening process started and additions to unemployment for May rose 0.3%. It is not even the end, as in 2 weeks, there might be another hike as this strong job data ain’t going to be a plus point for the market. Just a caution, not to overly chase the market when it is overextended and trade and invest carefully.
As seen above there was a strong weekly push up and SPX maintained above 4200 level. The next level to break is 4300 and with the expected CPI and Rate Hike within the next 2 weeks, it would be more likely to trade rangebound 4200 - 4300 until the decision is made on 15 June. Surprisingly, the Fed Watch Futures now turned the other way from last week that rates are likely to be maintained. Which means, only CPI would be left to drive around the final outcome of the market consensus and likelyhood.
The trading range for the week is between 4250 and 4350.
NDX (14546)
Breaking all odds and resistance levels seems to be the theme for NDX. The AI runup from the extreme bullish statements of NVDA on its earnings expectations has fueled any stocks which have some form of AI in its business doesn’t mater big or small.
NDX broken 14300 level and looks to break 15100 level but looks what is fueling this huge run up. The BIG 5 which accounts for almost 50% of the index. Who are they and what does their levels look like now?
Besides GOOGL and AMZN, NVDA has shot up above historical highs, AAPL and MSFT is almost reaching its historical high. There’s bound to be some pullback soon and when that happens, NDX will likely follow because of the weightage of the big 5. AI drive, WWDC summit, it’s all driven by some form of future event and earnings multiples are at its high. If you are not already in it, it’s not a time to chase and if you are in, then good for you. Might even consider taking some profits off the table.
VIX has been at its lows, 14.61 as of Friday and probably creep up a bit into CPI/FOMC. We have placed bull call spread on VIX expiring into 14 June. If it POPs, up we will be out when we reach 30% ROI. At the same time some SDS Call options as a hedge just in case a pullback happens in the next 2 weeks.
The trading range for the week is between 14300 and 14800.
HANG SENG INDEX (18949)
HSI closed the week with a strong bullish pinbar following on the strength of the US markets following the resolution of the debt ceiling last week. Also anticipation of the government stimulus package also made the market a little too excited.
Lets see if it holds above 19000 for the week.
OPTIONS TODAY - LIQUID GOLD
There’s hard gold and there’s liquid gold. We can trade these using ETFs under ticker GLD and XLE/XOP.
Both have been the best performer and in our trade portfolio so far. Although for oil plays, we trade on oil companies such as XOM.
While GLD is driven as a safe heaven asset and as a hedge against inflation, oil is driven on production and economic activity.
For oil, there’s always an adjustment factor that controls the prices, which is production. Although not all countries will come to the same consensus about production, there are big blocs which have an influence and one of it is OPEC (a consortium of 13 oil producing countries), maybe around ~40% of supply.
Last April OPEC announced to cut supply and oil prices shot up, but only for days before prices came back down shortly. Whilst cutting production will reduce supply, remember there are also the balance of ~60% producers which might not be in line with supply cuts in particular Russia which does around 10+%. USA is another major producer.
Economic activity of slower consumption of world economies such as China and USA themselves would also hamper sudden or over extended price increases.
Well these provides trade opportunities as usual, both sudden price movements like price jumping up on OPEC announcements, including the recent one over this weekend also pushed crude futures up.
We already took a short put trade last week on XOP, in anticipation of price increasing. Even if it did not increase, oil prices also is coming back to its lows, so a short put is also relatively safe trade. We exited 2 days and got more than 50% of the premium, there’s no need to wait 37 days to expiry.
With oil futures coming back up on the current OPEC production cut news, we might wait for 1-2 days from the price excitement to finish and load a bear call spread (21 July Expiry) on XOP at 135 short strike and +3/5 price cap above to define the risk. Check for the price action when market opens on Monday.
And if price retraces lower, back to the current level, we would place another bull put spread -$10 strike price below.
It is not necessary to enter at same time a neutral trade strategy like an iron condor especially if there is an erratic movement to one side, as otherwise one side of the trade will be tested faster when price normalises.
Conclusion
Premium selling on commodities ETF can be rewarding and create a regular income stream for traders. Just need to ensure that we do not only trade one side and have a balance of close to neutral deltas if we are taking the most out of the way it behaves. There’s always outlier moves which we can’t control, like war and covid, but those just happens once in a while, so don’t put all your egg in one basket and risk management and trade concentration is important, however lucrative a stock/ETF/strategy can be in the past.
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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.