Options Trading Newsletter - Issue #183 Options Today - Winner XLU
Fed-Day...
Fed-Day…
I think we should declare this week week of the Fed, as most of us are anxious of what is going to happen after the Federal Reserve start to cut rates. Are we going into a recession and the market is going to crash or are we going to continue this bull market?? It can go both ways but of course historical data shows that recessions are likely to follow with rate cuts. Whatever way it goes, you should just watch after your portfolio and manage risk according to your age profile. If you are close to retirement, don’t YOLO into techs like NVDA. You know what I mean.
Let’s pop the corn on Wednesday and see what’s instore after….
ES (5630)
Last week the ES went up strongly 210 points (3.88%). We saw strong support at 100 daily MA and it went back up to the green zone level 5490-5560. However this was not before it broke below the 100 MA on early Wednesday creating a super bear trap for the Bears squeezing them like hell via a V recovery of a 155 points (2.86%) intraday range.
So far we saw 2 V bottom type recovery from a steep selloff, one in 5 August and another last week. Are we going to expect a third?
As everyone is expecting a rate cut this Wednesday 18 September, the Fed should be giving them one, whether it is 25 bps or 50 bps, the market should continue to rally up retesting 5669 which is just points away, no sweat for a bullish market. The next level up would be 5721 which might also be possible since it is less than 100 points away. But where to after this, is the bigger question? Are we going to continually create new highs?
For that we need to monitor the price action, if it fails to maintain the break of previous high, whether it is the 1st level 5669 or the second level 5721, then we could see it coming back way down to 5450-5375 area (red box). So keep an eagle eye on the price action development for the next weeks.
Recall, last week we put in a Neutral Iron Condor, we anticipated SPY to retest the highs and then come back down on resistance, hopefully that plays out.
Trading range for the week is 5300 to 5700.
NQ (19527)
NVDA saved the week? Perhaps yes, as we had a major upmove on Wednesday after the spooked selling out of a sudden calm after CPI on Wednesday. NDX broke through above our targeted consolidation area of 18800-19100, closing the week at 19527, up big 1072 points (5.81%).
The momentum, could carry through this week till the Fed Meeting on Wednesday but watch for break above 20025 and if it can stay above, it would likely go for the next level up at 20,597.
Similar to ES, it it cannot hold above these highs, it could likely comeback to the 18,800-19,100 area.
Trading range for the week is between 17950 to 19900.
HANG SENG INDEX (17369)
As anticipated, a pullback to 17,000 level was supported with strong buying and HSI shot back up above 17500 level to 17540 high. We took some profits above 17400 levels. As usual, HSI retraced closing at 17,369.
If you are not already in, pullbacks below 17,200 would be opportunity to add long positions. Staggered entry and look for support AT 16900 level.
On upside, looking for it to retest 17,800 level and if it breaks, 18,200 level. Depending on how US market performs, a bullish week could easily bring HSI back above 18,000 levels.
OPTIONS TODAY - UPDATE ON NEUTRAL IRON CONDOR SPY
SPY went up 17 points from entry closing the week at $545.29. The trade is losing on the upper band of -$570C/+$573 C but the lower band of -$520P/+$517P is looking good. We are placing a GTC trade to exit the short put spread at $0.03-0.05. As we are expecting some form of retracement after 5 straight days of green days, if we no longer have a Bull Call Spread leg, any pullback in stock price will not result in profit friction as the Bear Call Spread will profit on price retracement, while the Bear Call Spread will result in a loss on that leg, if not closed. As we buy the Bull Put Spread at a small debit of $0.05, the risk of the trade will only add by that amount. Nevertheless, the benefit is if a retracement comes, the trade which is currently in a loss will quickly recover and possibly get into profit position more quickly, enabling us to take profit at 50% of the max profit faster.
In event, SPY continue to go up, testing $570, you may roll the trade in time, with a small credit or zero cost to buy more time for price retracement. But as said, we structured the trade already at 2x loss for the credit received, so we would possibly not take any action there but let the trade run its course, besides exiting the Bull Put Spread leg.
OPTIONS TODAY - UPDATE DIAGONAL ON MNST
Any dips in MNST is bought back quickly. Scatter to shelter from the tech sector probably. The price of MNST is going up too fast as for our slightly bullish Diagonal, we would want a sideway to relatively small bullish price action.
As we could not adjust our short strike of $48.5 in time due to the quick jump above this level. the short call is ITM. But as we structured the trade, not to fall below the zero line to the upside, the losses from the short call is always going to be covered by the long call on the initial trade entry. If at expiry, MNST does not go back below $48.5, we could likely close the trade with a small profit.
We are not going to pay a debit for the rolling of the short call whether at the same strike or higher because, if MNST continue to go up, we will eventually make losses as our trade cost have increased and the risk profile on the profitability line probably will be going down below zero hence increasing the trade risk.
OPTIONS TODAY - WINNER SYNTHETIC STOCK ON XLU
XLU reach new high last week. We closed the trade and took profit on Friday, in advance of the Fed meeting date on 18 September. The trade profit would be around 4x the entry debit, not bad for a month of holding.
This is the second winning trade on XLU which we shared on Options Today within the past 2 months.
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