Options Trading Newsletter - Issue #157 - DOWNSIZING... [Options Today - Long Japanese Yen Futures]
Downsizing...
DOWNSIZING…
In recent years, we've seen a lot of companies, big and small, trim down their operations. The tech giants like META, GOOGL, and AMZN have been in the headlines for letting go of thousands of people. I've been in those tough shoes too, having to make similar hard choices over the years due to shifts in the business climate and the need to save on costs. When a company isn't growing, one straightforward way to keep profits up is to cut costs. It's a direct lever you can pull pretty quickly. I once mentioned that those who carry out these tough decisions won't be immune forever. Eventually, the "axe man" too finds their role coming to an end.
Next week marks a new chapter for me. I'll be moving to a much smaller space, just 5% of what I'm used to, but with far less weight on my shoulders. It's a chance to pause, reflect, and plan ahead. I see it as the beginning of a new journey. Maybe it's about doing more of what I love and connecting with people like you. There's something much more fulfilling about helping build up people's futures rather than being the one to pull the rug out from under them. My time spent in the past, making those tough calls, is over. Now, I'm looking forward to a future where I can help others reach their dreams.
"The best way to find yourself is to lose yourself in the service of others." - Mahatma Gandhi
SPX (5117)
Another week of undeceive price action for SPX. Where it closed slightly lower for the week, but with a long wick down. CPI ticked higher to 3.2% versus 3.1% forecast. PPI was also higher at 0.6% versus 0.3% forecast. With oil going back above 80,inflation is probably not going to continue to stick around for a while.
There is still some headwinds at 5179-5200 levels and as of now, it seems that market is selling the rallies. Wednesday is the Fed Fund Rate meeting but there is probably nothing to cut apart from market waiting for future cues from the Fed on the rate policy going forward.
Trading range for the week is 5050 to 5200.
NDX (17808)
Another down week for NDX, losing 210 points (1.2%). Although the daily is still on an uptrend the momentum is rather weak. We already saw it hitting our lower target area 17800 as we mentioned last week.
As the Fed Fund rate meeting is coming in on Wednesday at a over 90% that the rate will stay put at this meeting, the expectation market is waiting is what next? With inflation rising back and the economy still strong, it is not giving much reasons for the Fed to firm any dates for a rate cut. The market still looks in denial until the fat lady sings on Wednesday, it’s going to be ugly, i would expect.
Looking now at a 17300 lower support and resistance at 18400.
Trading range for the week is between 17750 to 18100.
HANG SENG INDEX (16720)
HSI bounced off around the lower channel earlier part of the week but gave much of it off towards the end of the week. Typical of the trend nowdays where major big swings up cannot be sustained. So we will continue to trade along the channel lows buying in at support and selling into strength.
Next target upside, 17600 with support at 16200.
OPTIONS TODAY - LONG JAPANESE YEN FUTURES
Not many people look at trading currencies futures. Even for me, it is only recently I started to trade futures more than equity options as it can be a very steady income stream using the right strategy.
However, we tend to enter trades at either support/resistance or neutral at mid ranges. These would be safer trades as we only look for passing of time to generate income rather to be right on directions. For this we can sell option spreads to generate the premiums. Trading futures would require additional trading permissions for most brokers, so please ensure you have them before you can trade it. Also, be mindful that futures commission also tend to be higher, so if you are selling premium, you probably need to keep it longer to cover the cost.
Price Action Thesis
If we look at the Yen futures, it has been falling and finding support at 0.006744. Currently, JPY futures is trading at 0.006793. With the expected Fed Fund Rate meeting coming Tuesday, expectation is that interest will stay put for the USD. As for JPY, the expectation is eventually it will come out of the negative interest environment, which supports the YEN value on a longer term. So for short term, a rate reaction post Fed Fund Rate on Wednesday would be bearish on yen futures and this is the time when we enter a bullish trade after the fall.
Trade Entry
Enter a Bull Put Spread on/immediately after the Fed Fund Rate decision if and only if you see JPY futures fall. If it does not happen immediately, monitor the price trend until it reaches lower or close to support. On the currencies side, we can also use the USD/JPY rate as a target entry point. Anything more than 150 could be a good time for a long JPY Futures.
Indicatively, we look at entering a trade June futures expiry (/6JM4) at delta 15 and below which gives us a probability of profit at above 75%. As an illustrative, assuming we enter below trade buying a 0.001 wide spread, we will sell a put at 0.00665 (Delta 14) and buying a put at 0.00655 at $0.000021 collecting premium of $262.50.
Max loss is $1000 with buying power of about $600.
Our targeted entry price for the short put strike is 0.00665.
Trade Management
You may exit the trade at 50% profit when you see the price action starting to reverse. If JPY continue to strengthen, you may continue to keep the trade closer to expiry. Monitor the Delta and should continue to go down below 10 to be at a safe level.
Roll the trade to extend duration, if the short strike gets tested. Continue to generate long term income as we have a longer term view of JPY going up.
OPTIONS TODAY - TRADE UPDATE - PUT RATIO SPREAD ON BA
BA price was not only slightly bearish but it came down by around $16 since entry to $182.53. Don’t worry if you see that the trade is in a loss although it is still in the profit zone of the risk profile. We just need time to work for us for the decay in the extrinsic value of the short puts, which is now ITM. As long as on or towards expiry, BA does not drop below $179, we will see the profit coming in. We need to wait a bit longer into April for to see the profits if BA is hovering at the current price. Max profit will be at $185, which is possible if the planes keep its parts intact up till April.
BA came down to the lower end of our support line and bounced. If we see further support today, it should hold.
OPTIONS TODAY - STATUS UPDATE - BEAR CALL SPREAD ON SPY
SPY came back to around the same entry level, which is positive for the trade. We just need it to continue moving sideways for another week or 2 to close the trade for profits.
To review the trade, check out Issue # 155.
Below, trade we did a variation, Selling 2 Bear Call Spread and Buying 1 Bull Put Spread. Trade range 495-530. Currently SPY is trading at $512.86, exactly in middle of the range.
OPTIONS TODAY - TRADE STATUS ON BA DEBIT CONDOR
We loss the trade as BA crashed like its tyres giving away mid air. The opening of a criminal investigation by the DOJ ain’t helping either.
It’s just 10 days before expiry the trade was profitable and it turned very quickly. So what’s the learning point we should take from here? The tested side of the trade was the Bull Call Spread. Whilst we could reach max profit closest to expiry, the same goes for sensitivity of the price on the profitability level. Because we are close to expiry, we do not have any time for the price trend to recover if it falls down, and when we run out of time, the trade will be at full loss quickly. So, your decision is really when the price is above the short call of the Bull Call Spread, 2 weeks into expiry, it’s probably a good idea to close the trade if at 50% profits, as otherwise you are risking this profit with a 50-50% probability into expiry.
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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.