Options Trading Newsletter - Issue #30
FEAR.... Fear is a cycle and the only way to get rid of it is to face it....
FEAR...
We all have some form of fear in our life. Have you ever sat down and really list down what is your fear? Take one weekend to do it....lets see what comes out...
Firstly, I will let you know the facts about your fear and your situation now. Then I will let you know how you can overcome it...
Fear is actually a cycle and we call this the "FEAR CYCLE". Fear causes "Inaction" and "Inaction" causes "Inexperience" and "Inexperience" causes "Inability" and "Inability" results in "Fear" and the cycle goes on once more....
Today, I will share with you another story of mine...an interesting one about courting... my journey to courting girls started when I was in Form 1 because I was mixing with my seniors which testosterone is far bigger than mine...
As an inexperience boy, I had a lot of fear of approaching girls... and one day my friend took me to a fun fair day in CBN one of the popular school back then, maybe now still popular...
The reason we were there is not really for the games but there to get to know girls of course. So we were like hunters, finding our targets....
So we went from class to class sampling the games at the same time the girls. Then I saw this cute girl and told my friend that I found my target...my friend then say go go...go talk talk to her and ask for her number ...wow....thinking back that was really straight for us back then...
I said no no... I am scared... I fear that she will reject me... so I stood by the side for a long time circling that class where the "girl" was.... This was "INACTION" and as I was just wandering not going ahead to talk to her.... I had no Experience (INEXPERIENCE) what will it be approaching a stranger trying to court her to be friends.... and of course that resulted in "Inability" to get the girls number....
After some hours, my friend came by and said, we are going to leave. This is your last chance...what's the worst thing that can happen? She can just say "No" and reject you right.... just overcome your FEAR and get it done... come on be a MAN....
I sulked up a bit of my courage left after circling that class like a vulture for hours, I finally approached the girl and said "wow...this is a great fun fair...you look cute and I want to be friends with you. And guess what? YESSSSS.....I got her number and exchanged some calls and letters later on and what happened next was wiped out of my memory. I guess the relationship must have fizzled or did not work out, anyway what do you expect, I was only in Form 1 then.
So what's the moral of the story? In order to overcome FEAR you have to face it right smack in your face...there is actually no other way to go about it.
So the list of fear you wrote down? Go think of ways to face it directly.... if you fear riding a bike, go ride a bike. If you have fear of heights go stand at the edge of a tall building, if you fear cockroach, go find one and smack it. If you do this and face your fear, 9 out of 10 times you'll find out that there is really nothing to fear about...
“To conquer fear, you have to feel the fear and take action anyway”
MARKET UPDATE
SPX - ARE WE IN THE CLEAR?
Well, it bounced up, closing 22 points up above last week's closing. But it still seems far away from the all time high of 4546. To reach that it first have to pass 4487 which was around last week's resistance. Personally, I still have a fishy feeling about this bounce. Up till mid week it was line not a strong bounce and yet Thursday and Friday it broke above 50 EMA. Friday's close was not a spectacular one and did not even close higher than the previous day's high.
It looks to me like a bull trap as many stocks shot up by far too much in 2 days time. Lets see what happens next week and see if it hits resistance 4487 and come back lower or it breaches it and go back too the all time high levels. But lets not predict the market ya because we could never guess where it goes. We will just have to see it's price actions in the coming days to determine what actions we should take, need a bit more patience.
NDX
NDX closed 15329, more or less the close of last week before the gap down on Monday. It seems that it is trying to fill up the gap down price of last Monday.
The next level it need to test if it goes up us 15,539 before it can go back to all time high of 15701.
FB recovered some ground trading $7 up last Friday and closed at 353. People are really buying at the dip and have been a continuous pattern for many popular stocks. As the dip is was sharp and fast, I expected a strong rebounce coming and went onto the bandwagon with a Bull Put Spread which gave me additional safety margin even if the price were to drop more after enty.
Last week Apple told EPIC to go fly kite because it continues it's stance to block EPIC from its Apple Stores. Apple stated that it will appeal till the sun rise in from the West, meaning it will be a long drawn affair. I also took on a bullish one or two days after the court decision. Hopefully, this new event would give more boost for Apple to move back up above 150 and back to its high.
Things were not as nice for the China stocks. The value continue to drop like flies with no floor in sight. It passed the COVID low and can you imagine the frustration and tears in your eyes to see that 18 months ago if you would have bought in at this price and now it makes a revisit coming down 55% from its high.
Fear on China is high and lingering around not only in China/Hong Kong but international as well. But don't let this smoke and mirror blind our eyes and judgement. At one point, all these will eventually be resolved and things will go back to normal, most crisis will. For us traders, we will just need to look for the right entry time to reap the upward rewards when it does pass.
CSP PORTFOLIO PERFORMANCE (UP 15.2%)
(Portfolio performance is on MYstylework's Portfolio and is not a recommendation to buy and for informational purposes only. You are adviced to seek your own professional adviser's views and perform own due diligence when evaluating any stock, options or investment trades)
The chicken cannot fly but it sure can flap its wings and jump. Last week YUMC recovered 11% from its low. The positions are all recovering inclusive of the assigned stocks.
KWEB's fate was not so lucky last week as it started to drop again on Friday. We rolled out positions on Thursday for another week. Premium's not bad though at around 1% for a week.
As you can see in the past weeks, the market volatility is also causing the portfolio performance to go up and down. As long as we can continue to add premiums into the portfolio, and when the market stabilises and the stocks within the portfolio improves its prices, the portfolio performance would come back to our targeted return values. Just stay the course and follow the portfolio rules.
UNDERSTANDING VOLATILITY....
Everything is priced in for the Options. There would be little opportunity if any good news or bad news is not priced in. However this does not mean that the opportunities for price changes cannot be capitalised by traders. We can still benefit if we understand what is behind and driving these price changes.
The change in options pricing is partly caused by the changes in the Extrinsic Value of the Options. If we go back to the Options Premium components, we can see one part that is determined by its Implied Volatility.
So once a Trader understands that Implied Volatility (IV) plays a part to the Options Pricing then we are game because we know what drives IV in a stock. Example, the IV would tend to increase closer to earnings announcement and drop post announcement, a new product launch (like iPhone 13) may also increase IV or a bad news will cause IV to spike and price puts higher than calls.
All things being equal, if the stock price does not change, changes in options prices would be then due to this change in IV. We use IV to gauge market sentiment, examples in situations mentioned above would be the normal way market gauges those events.
With these information and when and how IV of a stock can be driven and affecting options prices, then we can use it to plan for our trades and also strategies used.
Examples would be the run up of IV pre announcement will cause Options prices to be high and hence we can do an earnings trade by selling premiums above 1 standard deviation through spreads or even naked positions. Post earnings, IV will drop (IV) causing options prices to reduce. Even if the stock prices don't move post earnings, we will gain because of the drop in IV causing options premium to reduce and making it cheaper for us to buy back the position for closing.
Or doing a debit trade when IV is low because options pricing is cheap. And you get to benefit when IV increases when you exit a trade.
There are many examples of us using this information to plan trades and strategies and once we understands this, we would be able to make best use of it to profit even more and time our entries and exits accordingly.
TRADERS TALK
Did you hear last week's Traders Talk?
I was speaking on why you should not invest in property but instead learn how to buy property. Is there a difference, yes for sure!!! Listen to Traders Talk Series 13 if you have not done so. View Past Traders Talk
I have even got the highlights here for a sneak peak...Sneak Peak Traders Talk
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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.
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