Options Trading Newsletter - Issue #122
Holidays... [Options Today...TLT Bond Play - In trade]
Holidays… [Options Today…TLT Bond Play - In trade]
It’s always nice when going on holidays, especially to places you had been before. Some people like to try new places to visit, but I am absolutely alright to go to places I have been before. Although you had been there before, things changes pretty fast in several years. You would probably see new buildings, new eating places and the best of all the experience in time is different especially if you have kids during holidays. Even the places you visit changes as your kids grow older.
It is always good if you take time off work and have a break once in a while. It can even be a short trip to spend time with your family and unwind and destress a bit from the day to day hustle and bustle of work. It gives you also time to think and clear your mind to look at priorities in life. Sometimes, we forget them and what we are really working towards.
I am enjoying my time here in East Malaysia, Kota Kinabalu and the last time here was 7 years ago! The last time here we went into the mountain areas, this trip just around the city, no specific plans, free and easy kind… it’s nice… summer’s here, go take a break!
SPX (4505)
CPI print was positive and the market rocked up last week by 106 points (2.4%). It hit 4512 the previous high and retraced down before close on Friday. CPI came in 3% vs 3.1% forecast. Recall in July last year we were at 9.1% highs in inflation and we are down more than 6% in 1 year. Whilst the market took a hit last year, we are almost back to all time highs for the SPX just around 300 points more but this is driven by a few stocks. It’s back to earnings season to see if this crazy market rally on a few will hold.
This week’s earnings. JPM started the bank earnings positively. The rest of the banking will follow this week, BAC on Tuesday and GS on Wednesday. Other notable earnings announcement is TSLA and NFLX on Wednesday.
Watch if SPX can maintain above 4500 for the next rally up. It’s very much dependent on how the earnings of corporates comes out and if they hold, we would look at taking back the previous highs, if not look for it to retest 4300 level down.
The trading range for the week is between 4425 and 4600.
NDX (15565)
CPI news was very much a bulls haven for tech sector because lower inflation would mean the Fed is closer to their inflation target of 2%. This would mean the end of the rate hike cycle which would cause interest rates to come down going forward. The expectation now skews to only one last rate hike for the year as opposed to 2 hikes before the CPI print.
The tech rally would likely continue unless the corporate earnings starts to slump especially if targets from last earning season starts to be missed, especially in stocks like NVDA, TSLA, AAPL, MSFT, AMZN, GOOGL and META (Magnificent 7). We would start with TSLA earnings this round. Coincidently, last week even Elon Musk had meetings with our government and subsequently announced launching of TSLA Model Y at below MYR200k, cheapest in the region. There seems to be some problems when TSLA is using price strategy everywhere to pump-up the volume and somehow its stock price.
The trading range for the week is between 15400 and 16300.
HANG SENG INDEX (19413)
HSI rebounded and regained the 3% down move last week. It failed to stay beyond 19,600 and loss the momentum by end of the week.
As said, we were long HSI through MHI but exited our position on Friday when it failed to breach 15600 level. The expectation is still for HSI to break above 20,000 level soon.
OPTIONS TODAY [TLT Bond Play - in trade]
With the CPI print positive, TLT price did not retrace but rallied up above 100 level. As such we did not wait for it to go down to 95 but had initiated our first entry on Tuesday. We added a short put into the normal diagonal as we see that the TLT price would hold with interest rate hike regime coming to the end towards end of this year.
As we had put in a diagonal trade, we do not need TLT to go too bullish and too fast. This is because we would want TLT short call at 103 strike to expire worthless. In addition, we would want the short put of 97 strike would expire worthless also.
All in all, we paid the following, net $3.75:-
Long Call 19 Jan 24 for $5.42
Short Call 18 Aug 23 for $0.80 credit
Short Put 18 Aug 23 for $0.87 credit
What to expect? We need TLT to rally up but not too fast. For the next 4 weeks, go up 3% to price of $103. In this situation, the short call 103 and short put 97 strike with total premium of $1.67 to expire worthless, a 30% return on monies invested ($5.42) on the long call. Total buying power is around $2k, which means the short put and short call gives a combined return of 8.4% return for 5 weeks.
We may then roll the short call further OTM beyond the price of the stock. We can continue to do this with the short call and short put, if the price action of the stock continue to gradually go up.$8.05 and short 18 Aug 2033 $103 Call at $0.80.
Imagine every 4-5 weeks we earn 30% on the $542 capital? That’s the target to generate monthly income through TLT from now until the end of the year.
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.
I just hope it goes up slowly till next year and generate good monthly income with the diagonal and the short call finances the call all the way :D
Love that TLT trade. I’ve been eyeing one as well