Options Trading Newsletter - Issue #90
PATIENCE, PERSISTENCE AND PERSPIRATION...
PATIENCE, PERSISTENCE AND PERSPIRATION......
The 3P make an unbeatable combination for success...
Real success does not come in a day. For those who wants to have a sustainable live changing success, whether in your studies, work, business or trading this is the right combination to have.
Patience is not the ability to wait, but the ability to keep a good attitude while waiting. One minute of patience, ten years of peace. With love and patience, nothing is impossible. Patience and perseverance have a magical effect before which difficulties disappear and obstacles vanish.
Persistence is to keep going, your hardest times often lead to the greatest moments of your life. Keep going. Tough situations build strong people in the end.
Genius is one percent inspiration and 99 percent perspiration - Thomas Edison. It takes work to be success, once you find the right one to work on.
With the year coming to an end, it is time you ponder on the 3P and start to workout your goals for 2023! Make it your year of success following the 3P formula!
SPX - 4041
Although SPX inched up only by 45 points this week, there are few significant moves that we need to take note. #1 SPX closed above daily 200 moving average. #2 SPX is now above the 4000 key psychological level. #3 stochastics remains overbought as market has rallied now about 2 months since 13 October bottom. The first 2 are market positive and the 3rd is a slight risk of some retracement.
The market has been waiting with clarity from the Feds regarding its interest rate policies and last week the Fed Chair J Powell has made it clear that the rates would stay high for the time being but the increase velocity would likely to come down lower highly likely 50 bps at the next hike on 14th December. That gave a market pop on Wednesday where the market rallied 3% on the day. On Friday after positive non-farm employment change came through, the market fell 1%+ but recovered much of it towards the end of the day, signifying a hungry market that takes opportunities on dips.
Lastly, the oversold daily stochastics which might be possible for small retracements in between.
The next key level to watch is the previous high of 4120 to see if it can breach this level. SPX have to stay above 4000 level
This week's trading range is 3950 to 4100.
NDX - 11994
It was a crazy week for Nasdaq, as the speech by the Fed Chair, J Powell gave a boost for the market running up by 526 points (4.6%) on Wednesday. The market's sensitivity on interest rate is significantly higher than SPX by almost 3-4 times. Friday, was another big intraday movement where the market dropped significantly on open after the non-farm employment change results was announced an hour before opening. Market came down 200 points but recovered almost all of the losses till day end close.
Market may sizzle down a bit this week awaiting for the next wave up post Fed Rate meeting on 14th and prior to that CPI announcement on 13 December.
Nevertheless, it may be a potential to enter into some risk defined longs on smaller pullbacks during this week to capitalise on possible upside with the positive CPI and interest rate affirmations announcement next week. VIX has reached its previous lows in August at 19 level causing IVs of many stocks to come down allowing cheaper debit options.
This week's trading range is between 11,600 and 12,500.
LOW VIX = LOW PREMIUMS
With VIX coming down to 19 levels from its high of 34, the market premiums for Options have came down by a lot. When the volatility of market comes down, the IV of options will also come down together causing options premium to reduce. If you have entered into any credit options recently, you would also have noticed that although the price direction goes the opposite of your trade direction, the position does not take much losses because you sold at a high premium during high IV times and when IV comes down that reduction also shields your position from losses. Also during high IV environment, a 20 Delta position would have a higher 1 standard deviation move.
We can see the 5-Day IV change for stocks in the Tastyworks platform to determine if we have more opportunities on credit trades or debit trades.
Takeaway
By understanding the correlation between market volatility (VIX), IV and also options premium, we can plan entries or exits for trades and also deploy the right strategy to capture the right opportunities. Low IV environment, debit trades would be cheaper and exiting profitable credit positions would be advantageous.
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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.