Options Trading Newsletter - Issue #137 SPIRIT'S HIGH... (OPTIONS TODAY - EARNINGS PLAY - BULLISH ON PLTR )
SPIRIT'S HIGH... [Option Today - Earnings Play - Bullish on PLTR]
SPIRIT’S HIGH… [Options Today - EARNINGS PLAY - BULLISH ON PLTR]
“Spirits” were high over the weekend as people were preparing home decorations for the Halloween Trick or Treat walk around the neighbourhood. Spiders, Ghouls, Witches, Devil and all sorts of creepy crawlies were displayed at the lawns over Saturday afternoon. All the children were excited for the night and prepared their costume…
As nightfall came, the unexpected happened… along with strong winds, came the thunder and also rain. “Spirits” were now dampened by the wet situation and did not look like it will go away anytime soon. 2 hours passed and it was still raining cats and dogs… the roads remain empty with goodies all placed nicely at the lawn untouched, no ghoulies or witches came….
Suddenly, we heard some people calling “Trick or Treat” and it was still raining and to our surprise, droves of kids came dressed in their costumes with umbrellas of course and happily collected their bounties. I think they waited as it came close to their sleep time, they must have guessed “it’s now or never”, forget about the rain, we need to get our “Treats” and the told their mommies and daddies we have to “GO NOW”… give us an umbrella and we will be okay…
The rain did not stop the kids from having a good time for their Halloween walk around the neighbourhood. After witnessing the kids' unwavering spirit, we were reminded of our own struggles to become a good trader. Despite busting some accounts at the start, we continued to learn and persevere, because we understood that the rewards were just lying there for the take… Much like these kids, who, armed with their umbrellas, refused to let the rain keep them from their once-a-year candy quest."
As the night wrapped up and the laughter of children faded into the distance, one has to wonder, when was the last time we pursued something with such unwavering determination? In the face of life's storms, do we grab our umbrellas and march on, or do we wait for clearer skies? This Halloween, amidst the rain and the treats, the kids in our neighborhood taught us that sometimes, the sweetest rewards are earned when we push through the challenges.
What's your umbrella?"
SPX (4117)
SPX is now broken down the daily 200 MA and retesting the 4100 level. It could potentially go lower for the week before the Fed Rate Hike meeting on 1 November. Market does not expect a rate hike this round as the FedWatch monitor is already at 99.9% for rates to maintain for now. More importantly, the rate easing is only expected now in June 24. So there’s still plenty time for the market to be going down and as long as it does not go down below 3800, the October 22 uptrend is still intact.
The earnings so far is mixed and even when they surpass estimates, they quickly soldown the gains, as we saw in MSFT last week. Potentially, this week we could also see the gains from AMZN earnings being wiped out as market fear is still high with VIX trading still above 20. This week lets see if AAPL will shine on Thursday after close as the last round earnings was a disappoint.
Interesting earnings to watch this week is AMD, PYPL, PLTR and AAPL.
Trade range for the week is 4000 to 4200. The current level till 4048 would seem to be a decent support level as it was a heavy sideway volumes from April to May this year around this level.
NDX (14180)
Things does not look too good for NDX as it lost 2.6% for the week. It still have more downside than upside for now. If NDX breaks below 14,000 level, it could see the next level down to 13720.
The earnings of BIG Tech will be key for the week, AMD, AAPL, PYPL, PLTR and QCOM. As the last big rally was mainly tech driven by the Magnificent 7, so far even MSFT which was positive also went down post earnings. The market sentiment is not all that great with GLD spiking towards close on Friday going above 186 level.
Trading range for the week is between 13650 to 14600.
HANG SENG INDEX (17398)
HSI recovered some grounds this week after hitting the lows of 16879. It could potentially go higher to retest the upper resistance of the current short term down channel.
The lower support now at 16800 and resistance at 18000.
OPTIONS TODAY [EARNINGS PLAY WINNER - BUTTERFLY ON INTC]
Our Earnings Trade played out right on spot. We entered the trade when price was $34.92. The profit range was from $34 to $37 with $35.5 as the max profit level. INTC retraced post entry to $32 and on earnings it popped back up closing at $35.54, right around the max profit level. If you held close to maturity (closing Friday), the max profit of $1.24 would have been reached, giving a return of over 300%. We exited at 117% right immediately after market opened. One reason is typical of post earnings movement, it does not always stays at the same level and at times, the whole upmove/downmove would get reversed fairly quickly on profit taking/buying support. Anyway, we are happy for the results as our target was 25% profit only and we achieved 117%.
There are many more earnings coming on and if you have learnt the steps in our newsletter last week, test it out on stocks trading below $50 as a start.
OPTIONS TODAY [EARNINGS PLAY - BULLISH ON PLTR]
PLTR’s earnings is expected on Thursday after market close.
PLTR has came down after it failed to rally up to previous high of 21 in August. Nevertheless, we see that at $14 level, there is a strong support as it bounced at this level at least 3 times in the past few months.
Zacks.com has a #2 Buy ranking on PLTR and Earnings ESP is positive 4.35%.
Earnings is expected before market open on Thursday 2 Nov. Expected move for this week is $2.87 and PLTR is currently trading at $15.07.
As we are bullish on PLTR we are going to do a Super Bull Trade using a Bull Call Spread and a Naked Put.
Trade Entry (15 Dec Expiry)
Buy a Bull Call Spread - Buy $15 Call and Sell $16 Call for $0.43 debit
Sell a Naked Put at strike $12 for $0.47. Delta 18, which means we have a probability of profit of around 80% for this naked put. This naked put is also below the $14 support level.
Trade entry is for a credit of $0.04 with buying power around $500. Max profit is $1.04, which equates to around 20% ROI on buying power used.
As long as price stays above $12 on expiry, we will still make $4.
(Adjust pricing as market opens today, best entry is if PLTR price falls today)
Trade Management
We do not expect to manage the trade as the Naked Put is already fully financing the Bull Call Spread. We take the Naked Put as a form of insurance. But if price falls, we need to hold the Short Put till expiry as it will also go into losses. As long as price don’t fall below $12 till expiry, the trade should be fine. Only manage in case price drops down below $12 strike by rolling over the naked put for more time with credit.
If price jumps to expected move after earnings, we exit the trade with a 50% profit.
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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.