Wise… [Options Today…Protecting Longs]
Think Globally, Act Locally and Expand Internationally.
This is what any Wise Entrepreneur would do.
If you are a frequent traveler, you would understand the hassle to go to the money exchange to exchange foreign currencies of the countries you want to go. Sometimes, you exchange too much and sometimes you exchange too little. But most of the time you will end up with some leftovers stashed in your drawer over years till the dollar notes are expired as most countries upgrades their notes every few years.
For many years, I have exchanged less cash and used foreign currency debit cards which has a physical card and controlled using an app in the mobile phone for transfer in funds and conversions. You only convert the amounts when you want to use them avoiding over conversions. Any excess can be easily used to convert the next type of currency required. These debit card are normally issued by local institutions and partnering with a card issuer like Visa. In my case I was using “Merchantrade” once a traditional money changer which went “fintech”.
Recently, I came across a similar service provider which is even “Wiser”, no wonder they called themself “Wise”. Not only they provide foreign currency exchange in a debit card, they notched up by even giving you bank accounts in foreign currency and I mean real bank account with your own name and number. Which means you can use this account to receive funds or even as your payroll account, 50 type of currencies. If you are trading using Interactive Broker, it is also one option to transfer out your money/profits to spend in your next holiday. I tested it, received within 1 day and free one transfer a month and thereafter $1 per transfer. I recall my bank charging me USD25 for incoming transfer from the broker account.
Although, Wise is not new, many people still don’t know about it. I heard of it before but never tried it until now. It has a bit of all…local functionality interacting with local transfers in/out, global features of multiple currencies and banking accounts and everyone has access to it internationally. Test it out before your next travel date and make it your goal to make more trading profits and transfer it to your Wise account/card.
Test out Wise using my referral code here… you get a free debit card (if available in your region)
SPX (4515)
Contradicting data for lower than expected ADP Non-Farm Employment change of 177k vs 194k while the Official Non-Farm Employment Change showed 187k vs 169k. Actually, the decline in SPX came in on Thursday itself after the release of the lower than expected unemployment claim. The Fed Chair, J.Powell have already said they need to inflict maximum paid to the economy and needed to see people getting out of job. So when the data came in better, that means the pain is not enough and hence possibility of further pressure on rate hikes. While the Friday data on non-farm payroll added salt to the situation to make the market go down more leaving no possibility of closing the week with a green candle.
We saw 4527 level breached in the last 2 days but both days we were unable to close higher. There are likelihood for further retracement for the coming week after market opens on Thursday as Monday is Labour Day holidays.
Watch 4500 level, if SPX breaks down below this level of support. If it does, we are looking at next level down of 4350.
The trading range for the week is between 4450 and 4600.
NDX (15490)
NDX is up 549 points (3.67%) for the week. It ended the week with the single red candle for the week. It failed to stay above the preceding high.
For the week, we expect a small pullback and some sideway trading this week. There is not much unemployment claims announcement on Thursday.
The trading range for the week is between 15050 and 16000.
HANG SENG INDEX (18383)
HSI found support at 18,000 level and opened the week with a bang +500 points but could not sustain thereafter with heavy selling and lost most of it by end of Monday. It tried again to rally on Tuesday but the rally could not sustain for long. We see support at 18200 and anything below should be a safe buy. On the upper side, we see it to easily go back to 19,000 level if it rallies due to the big gap between 18800 and 19000.
We took another short swing down after we saw weakness in the rally after hitting the daily 21 EMA.
OPTIONS TODAY [PROTECTING LONGS]
Many people just buy stocks and never sell. Price goes up, they keep it, price goes down they keep it…no action. Over the long term, if you keep great stocks, prices of course tend to go and that is without a doubt. Even if you take S&P, we are almost back to all time highs although at one point it came down 27%.
Do you know that if you hold 100 stocks, your investment position changes significantly and you can even profit if the stock price goes down? Yes, you can profit from the premiums on calls sold. This is a Covered Call option strategy.
Assuming you sold ATM or OTM Calls and the stock price went down further. The calls you sold will expire worthless and you will keep the premium for free. Nevertheless, you lose money on the reduced 100 share value. The premium earned will offset the loss in share value. If you had done nothing, ie. did not sell any calls, you would have nothing to offset the reduced 100 share value.
Take this like you owning an apartment but never stays in it. If you rent it out, you get rental income. If you just leave it there, you will be subjected to market price volatility up and down but since you have no intention to sell the apartment, the only thing you miss out is the rental income if you take no action to rent it out.
Lets take MSFT as an example:-
At 18 August
MSFT closed at $316.48.
Reduction in share value = $347 - $316.48 = loss $30.52
Loss of $30.52 is assuming we did not do anything and just hold on to the MSFT shares.
Scenario 2, we sell an ATM call for $12.30
Reduction in investment value = $30.52 less premium received $12.30 = $18.22
You can see by selling calls, we lose out only $18.22 as opposed to losing $30.52 (if we do not do anything).
At 1 September
As at 1 September, price of MSFT recovered up to $328.66.
Our position if we do nothing - loss in share value = $18.34
Our position if we sold a call - gain in share value = $6.04.
Conclusion
If you sell calls when price of stock is declining, you get to offset the premium to the reduction in stock price. And when price moves back up, you can gain even faster compared to doing nothing. This is one way to protect your longs.
In a conventional set-up, Covered Calls are normally used in a mildly bullish stock or sideway trading stock to earn additional premium on a holding of minimum 100 shares.
Trade entry - tips
Sell calls when the price action is reaching resistance levels.
Stop selling calls or close position if you see the stock price becomes bullish again or reaching support. Let the stock price increase in value.
Risk
When you sell calls, you are giving your rights on the 100 shares away at the strike price. If the price goes above the strike price of the short call (ITM), your options may be exercised. To avoid exercise, you may continue to roll the ITM calls for more premium. That way, you may temporally avoid assignment. In case stock price goes back down below the short call strike, you may exit the position or wait for the short call to expire worthless.
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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.