Options Trading Newsletter - Issue #114
Living Your Fullest... [Options Today - Insurance Buffer With Expected Move]
Living Your Fullest…
What does this actually mean?
Some people would say to make most money they can, to achieve the highest success they can, to help as much people they can, to enjoy life as much as they can and so on….
But the real truth is, when you go six feet under, it all does not matter and the only thing that matters is how people remember you. You can have the most fulfilling life, the happiest or the richest person, you take all that down the grave as “yourself” but what you live behind are the more important thing.
How people remember you as a parent, as a friend, as an acquaintance, in society… If they have a positive remembrance of what impact you have on their live and how you had live to the fullest to make these impact…. But never forget that while doing this, you also need to enjoy the journey and not being a miserable in life as life is short, and you should live it for yourself and others as well.
So remember, what we do today should not be for self interest but for better of others as well…you ain’t bring anything down there but good memories in other people that continue your legacy.
"Live with passion, love with all your heart, and leave a legacy that lights up the world."
SPX (4191)
Although SPX is up for the week, it did not manage to close above the previous high in Feb 23 of 4195. In fact, it went above the 4200 resistance level and came back down. As much as the rally on AAPL, MSFT, NVDA, AMZN and GOOGL continued strong, it’s all optimism that is pulling the market up on a background of a weakening economy and fragile banking sector in the US.
The fact that the debt ceiling still not being agreed amidst political goons playing Russian roulette with the livelihood of millions who voted for them is really a joke to the outside world. So don’t start condemning the rest when you yourself can’t do right for the country. Solving the issue by increasing the debt ceiling is no different from anyone else trying to solve their financial shortage by getting another credit card as once the limit is up, you end up in the same situation as before. Recall, you heard the same debt ceiling problem 3-4 years back? Let’s see what plays out in the next 1-2 weeks. It will get solved once the goons get the best out for themselves, but it will leave everyone else in a debt trap!
Coming back to focus, we still stick to 4200 level of resistance and if SPX does spike above in the next days/weeks, the question is will it be able to continue staying above for long.
The trading range for the week is between 4150 and 4250.
NDX (13803)
NDX had a strong rally of 3.5% for the week. It now sits above the previous high of 13720. It had a small pullback after the Republicans walked out from the debt ceiling talks. The debt ceiling will probably be solved with an increase in the debt ceiling and the market probably have priced this in already. VIX is staying on its lows closing at 16.82 last Friday, indicating there is not much fear coming into the market because of this issue. The US will be scrued if it defaults in its payments on an expended basis, so it will be a matter of time this will be solved.
From the big rally last week, NDX is going to be choppy and likely do a small pullback from 13800 level. Yellen will be speaking on Wednesday and that could be a interesting volatile trading day.
The trading range for the week is between 13400 and 14200.
HANG SENG INDEX (19450)
HSI stayed weak throughout the week from the weak industrial production data and lower than expected retail sales data release. Nevertheless, we still see support at the 19500 levels.
OPTIONS TODAY - INSURANCE BUFFER WITH EXPECTED MOVE
Now that we understand what is expected move and probabilities of expected move, we then need to know that we do not need to be fully correct about direction if we are option sellers.
As oppose to buying options, if we are wrong about direction, then we will lose when we buy a call/put.
As you know that the expected move always stays at some range away from the current trade price, we are always working on a buffer price before the stock price hits the expected move. As long as it stays within the expected move at the expiry of the option duration, we will WIN in the trade event though the direction moved to the wrong side of our assumption.
Coming back to the previous week’s example on SPY having an expected move of +/-$14.38 on 16 June options expiry.
We show below, that on any strategy we do, we have a price movement buffer insurance on this example of 3.4% for each direction if we are doing a directional strategy (Bull Put Spread/Bear Call Spread) and an insurance band of both direction of +/-3.4% if we are doing a neutral strategy (Iron Condor/Strangle)
Conclusion
In trading options, you don’t have to be right all the time and we need to know how to use the 1 standard deviation probability (Expected Move) to trade to our advantage.
TRADERS TALK
We had not the opportunity to air last week, so I hope all of you are doing well. Keep engaged on our Newsletter and Facebooks or Substack Notes updates.
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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.