Options Trading Newsletter - Issue #28
INACTION Vs IN ACTION... Same words but a space in between makes a huge difference...
INACTION Vs IN ACTION...
Do you notice what separates from the successful people and not so successful people?
Well, it is really a "space" in between. Both have the same resources but one achieves more success than the other. WHY?
The people who drives success will do a bit more, example, spend a bit more time to study, spend a little more effort to complete their client proposal, read a bit more to enhance their knowledge, spend a bit more time to manage their money, and do a bit more on everything that will move them forward.
I still remember vividly how I did nothing for over 20 years to manage my personal finances. I thought I was busy at work and never bothered to manage my money. To put them to good use or to grow them so I have some form of financial security when I retire. So I just did what many people did, just work, get a salary at the end of the month, spend them the next month and then the cycle repeats.
It is not until I turned 40, I had suddenly found myself in mid life and looking at what I achieved for the past 40 years (nothing actually) and where I will be headed in the next 20 years (nowhere also). That really gave me a scare and I had what people called "Mid Life Crisis" Syndrome. The fear that I would end up broke when I retired and would not have the full ability to provide for my growing family needs really put me into a stressful situation. Not that I was not having a good work career, I was at the top of a large multinational corporation, just that I had not planned better for my personal finance while I was busy at work.
So that "Mid Life Crisis" put me from "INACTION" to "IN ACTION", to find a solution that will not result in me being broke when I retire and give my much more security to ensure that I can care for my family's financial need. I started to see what I can do and eventually it landed me into learning how to Trade for an income. The journey was not easy of course as I had to learn from scratch but it was also not hard at the end of the day. Just took a bit of my time to learn the skills required. Like I said earlier, the difference between successful people and not so success is they spend a bit more time to do the things required... In actual fact, it is that simple to achieve success and I had only found out 20+ years later. Imagine what could have been possible if I took action earlier.... Well it is never too late as long as you are there one day...
I'll leave you with this quote from John Maxwell:
“You'll never change your life until you change something you do daily. The secret of your success is found in your daily routine.”
MARKET UPDATE
SPX - You Asked For It....
Do you remember this show in the 80s called "YOU ASKED FOR IT"...it is a comedic show showing wierd and funny stuff people do. The show responds to request from viewers what they want to see and then finds a video and airs it during a show. We used to wait every week for this show to air and have a good laugh!
So what do you expect SPX to do now in September? The audience wants to see a historical September market down pattern and it will give...It was all red since the whole week! YOU ASKED FOR IT....
Friday's drop was the steepest with the market selling off in the second half of the trading session closing down 35 points to 4458. I guess this will sparkoff a jittery week ahead at the next support level of 4420.
In 2021, there were 8 major retracements back to 50 EMA, all bounced at this level except one which went close to 100 EMA. Of course, there are a lot of naysayers out there which say the biggest crash will come and if it does happen they will come out and say SEE I TOLD YOU SO.... But remember these guys are always saying something to the opposite of what is happening, of course it will happen right? It is a matter of time and they take credit to say they predicted it...and if it does not happen they will just change the month to say it is going to come next month or the next month...
Whatever it is, as traders, we will adjust according to the markets price actions, going up or down is a part of the game.
NDX
NDX is also following the main flock to close lower for the week to 15440, 212 (1.3%) points lower. The last retracement was around 3% so if anything, we can have more to go if it continues tumbling. Anyway it is a healthy one to comedown a little as some of the counters prices is far too overpriced that we ourselves have little faith to go long on it.
Last week, the big decline came from Apple on Friday after the case with EPIC - Fortnite game unveiled. If you had followed this case, Fortnite was booted out of the Apple Store after it made alternative ways for users to pay for their game purchases as Apple claims it infringed their terms of service as Apple only allows for payments to be made through apple store with a hefty 30% commission. As a result EPIC went to the courts to fight this out and the results were somepart in favour as the court ruled that developers should not be prohibited to allow other payment modes for its services, if the customers chooses to.
Of course, this does not bode well for Apple as they might have leakages out of these commission from other developers in the future. Apple already tumbled $5.10 (3.3%) on Friday, that's a whopping $70 billion in just one day! The estimated revenue per year from app stores is around 64 billion and market cap represented by Apple Services was around 25%. It is not as if people will just switch off paying off for downloads through the App Store and probably some part of it will leak away for some people who want to go through other hassles paying via other modes, but most people who uses Apple would not stinge on a few bucks for the convenience given.
So the overreaction may well be an opportunity for contrarian traders rather than a risk. I hope to see another 5 bucks shaved off for a great trade opportunity here.
The second half of Friday was also not forgiving for the China stocks. Most rallied on the first half and gave back most of it in the evening. I am still bullish on China although now it comes with another set of US-China show of power after the call between Biden and Xi Friday morning.
CSP PORTFOLIO PERFORMANCE (UP 18.9%)
(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)
Not much has happened since last week. There are many positions coming into expiry this week of which 6 out of 8 should expire worthless. The other 2 would probably be rolled over to October for a small credit.
There are 2 calls which would slightly expire ITM and it depends to the price action and premiums if I decide to roll them forward to collect more upside on the stock.
So the current market dip will give a bit more opportunity to add on more positions for the October or November expiry period as we are still a bit light on our trades after the September batch expires.
Again the great thing about this strategy is that we can actually plan ahead how much income we want to generate out of the portfolio and line up the expiries month by month. As an when the current batch comes to its end, we plan ahead for the new batch of income earners.
The second portfolio which we ran in July is generating a 3.45% return after 2 months. If you have been following, this portfolio was set-up for the pay off your housing loan in less than 4 years challenge.
BACKTESTING STRATEGIES....
One of the ways to test out strategies before you put money in trades is to use backtesting. Of course, past prices would not guarantee future profits, it is still a reliable way to test strategies as stocks tend to behave in a certain predictable way over time.
Below we did a backtesting of Selling Delta 30 put and Delta 20 Put on JPM to see which tend to be better historically.
Delta 20 Put performs better historically for JPM
Another backtesting of Selling Delta 30 put and Delta 20 Put on AAPL to see which tend to be better historically.
Delta 30 Put performs better for AAPL
From the above backtesting, we see that different stocks perform differently with the same strategy. JPM performs better with a lower put delta whereas AAPL performs better with a higher put delta.
One reason may be caused by a higher historical volatility of JPM of 41.8% over past 15 years compared to APPL of just 34.1% hence the likelyhood of the price going ITM for APPL is less likely as prices are less volatile over time.
With more understanding on the behaviour of stocks overtime and using backtesting tools, we may better tweak our trade strategies and trade entry rules according to the stock behaviour in the past.
If you would like to get hold of this new backtesting tool from Tastyworks, you can signup in tastytrade.com and then apply to be a beta tester for this backtesting tool at https://info.tastytrade.com/lookback. You should receive an instant access thereafter, presuming they still need more Beta testers, so get it quick before they close it down.
If you want to look at historical volatility of stocks in your portfolio, check the data with the Historical Volatility Spreadsheet.
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 12 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.