Options Trading Newsletter - Issue #98
The Best of Times…
Have you ever heard that the best of times was like 20 years ago? Yeah, you would have made it if you were in the dot com era… great money was made when you invested in Apple when iPhone was invented, you would have doubled or tripled your money when you believed in Tesla or Bitcoin. What would your reaction be if you have heard any of these? I would say, most people would just say “ya I damn missed those opportunities…would have been great if I were there”.
But do you really think of it is that there is always a second Best of Times or even a third best? Because opportunities are always there, just whether you are there to take it. Bitcoin rallied 50% in the past 2 months, Tesla rallied 70% just within 3 weeks, plenty of blue chip stocks went up more than 10% in January 23.
The real fact is there is never a best of times, second or third. It is really what you do with the time you have now and what kind of opportunities you open yourself to. Of course, things does not always comes landing on your lap. You have to work for it, put in effort to rake those opportunities in, be it in work, relationship or in investing/trading the stock market.
So the next time you hear “The Best of Times was…….” from someone else, reflect on what you are doing then to give yourself the “Best that you deserve…”
SPX (4070)
SPX had broken the upper trendline beginning of week and ended up bouncing off 4100 resistance level. SPX went up 98 points (2.8%) for the week and 6% for the month. From the Oct 22 lows SPX have moved up a whopping 16%! That’s enough to entice any sideliners to jump in to take a bite at the market.
Not to be a pessimist but the market does strange things and can really screw up the mental state of investors/traders especially those who can be lured in easily. Recall the June rally where we were up 18%? The market quickly gave up 23% thereafter, forming lower lows. The only consolation of this round of rally is it breaching the upper trend line after it failed the last round. Is this another “Dead Cat Bounce”?
Some reasons why the rally persisted, newsflow on the macroeconomy has been kind lately, inflation coming down, jobs addition still positive, wage growth slowing, interest hike rate decreasing, and latest last week GDP quarter growth higher than expected. Corporate earnings although mixed, so far the market darlings favourites like Tesla went well. Even Microsoft which expected slower growth, went on a dip buying support spree. I guess the cash hoards stayed out of market too long and many went back in after mid December’s dip following on January’s rally.
Take a step back as whatever announced so far are all lagging indicators and what the corporates are doing in the past months are trimming staffs and reducing their forecast. What comes out of this will be effects in the next month’s data. So even if the rally continues, the pullbacks are almost certain to my view, if not at 4100 levels then 4200 levels. Anyway, it’s always difficult to predict and time the market but better to follow your own gameplan on investing and trading. Checkout our “What and How to Buy” plan which we aired back in November 22. We are still executing the gameplan and so far so good.
What’s coming on this week is going to be exciting for the market. Fed Fund Rate decision on 1 Feb and Non-Farm Payroll on Friday. Market expectation is 25 bps and let this be the last hike for the year 🙏.
Resistance at 4100 and daily 50 MA is inches to cross 200 MA. Is 200 MA going to be a brick or breeze? We have never touched this point ever before since the bear market came in 2022. Let’s see…
This week’s earning watchlist:-
The trading range for the week is between 4000 and 4150.
NDX (12166)
NDX had a 547 points (4.7%) rally for the week. It hit rejection after it breached the previous high in 13 December. Do you recall what was on Dec 13 when the market dropped 12% thereafter? Yes de ja vu Fed Fund Rate hike… It’s kind of like the Fed building up hope till “D” day and then put in a BOMB to blast it down… I call it a buffer for bad news 😂. Anyways, it’s kind of like market pricing it’s expectation that this is the final rate hike for the whole tightening process and the economy is taking a soft landing based on the data so far. Nevertheless, these effects would probably materialise and come to effect after the first quarter of 2023.
TSLA up a whopping 33% saved us for the week and lets see if AAPL, META, AMZN and GOOGL will do the same on their earnings.
NDX needs to hold above 12166 level and if it does the next up level is 12800. If it breaks down, watch 11500 level support.
The trading range for the week is between 11700 and 12700.
TRADING OPTIONS ON HANG SENG INDEX (HSI) AND HANG SENG TECH INDEX (HSTECH)
China is on the beat since after the China Communist Party (CCP) meeting late October 22. President Xi winning it’s third term as President and we saw shortly after that policy easing on big caps, supports on the property sector, even state investment fund taking of golden shares in Alibala and Tencent. Lastly, the move to open up the country and remove most of covid restrictions in early December has given the final boost to the economic recovery and confidence of the western world back to its financial markets.
HSTECH Index which tracks the tech stocks listed on Hang Seng also moved up significantly since, in fact 75% up! As like NASDAQ, the movements down and up is faster than the general market eg. SPX.
Both the HSI and HSTECH are optionable and we can trade it. I would normally trade only monthly options although there are nearer dated weekly options. Liquidity and premiums aren’t as good as what we have on the SPX though. Each contract has a multiplier of 50 which means the option price multiplied by 50 and it is an European Style Option, exercisable only on maturity date.
Unfortunately not all platforms would make this available but you could get it from Interactive Brokers.
What strategy?
Just like US options, we can execute any type of strategy. The tick value of HKD50 (USD6.50) per tick, with daily volatility of +/- 1% to be normal. As a start defined risk trades like credit spreads is tradeable within Delta 20 - 30. Risk and reward, 4:1 for credit spreads one to two months out. Best days to put on is during retracements as we can set a higher delta entry.
Is now a good time?
As HSI and HSTECH has gone up more than 50%, it would be best to wait for some form of retracement, as now everybody is clamoring to get into China/Hong Kong 😂. Be patient as the market is always there and there’s no need to FOMO as there are still some long way to go back to previous highs above 30,000 for HSI.
Watch out for the cost of trade as it tends to be higher than what we are used to in the US.
TRADERS TALK
We were off last week. See you tomorrow!
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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.