Options Trading Newsletter - Issue #190 - Options Today - Bull Put Spread on MCD
Duped...
Duped…
Last week, oil futures took a dump from $71.7 to a low of $66.72 and we said just wait 2 days to see where oil will ho and true enough, the selloff only took 2 days and oil today is back to where we were before the selloff. Ang guess how much was made by people who put fear into the market? Well over 7% in just a week. And the narative now is Iran is going to strike back, and isn’t that going to be the obvious action when you bloody bomb my backyard????
As the mainstream media put panic on the market, we just played alongside it to make some profits buying low and selling high. It is just how it is… live by it or get duped by the market makers/manipulators.
ES (5758)
ES closed lower last week and is sitting on daily 50 MA. From the looks of it, it may not be able to stay above for long and may come lower to 5600-5650 levels soon. Market may trade sideways a bit until elections results are out or after J.Powell deliver his speech at the Fed Meeting coming 7 November.
VIX is ticking back to the high of 22 and if it breaks, above, we will see a sea of red.
Earning season continue on this week, with PLTR on Monday, CVS Health Tuesday, ABNB and SQ on Thursday. If earnings expectations are weak for those reporting this week, market may continue sideways and to the lower side until more clarity on elections results after Wednesday.
Trading range for the week is 5650 to 5850.
NQ (20153)
As we said yesterday, likelyhood was selling the rallies and that was what NQ just did last week. From lows to highs, it was 328 points and the following day, ND dumped 316 points range and Thursday another 487 points range. The weekly change was -345 points (1.69%). The week was also driven by Mag 7 earnings which did not fared so well for some. It dropped close to 2% for the week.
NVDA can’t keep up and sold off last week. We could see selling pressure continuing to level $129 now, until election results are out.
TSLA also could not hold the big post earnings jump. This is now a Trump pump Harris Dump stock now since Elon Musk is a Trump boy…
MSFT also did not do well post earlings losing more than 4% for the week. If it gives in, we are looking at $366 level.
AAPL, also lost it post earnings. It is now sitting on weekly 21 MA. If it loses it, we can see $200 as very likely support down.
GOOGL was up post earnings, but even that, it could not hold on to much of the gains and quickly sold off. Not sure what the market is trying to say….but no one is really taking much risk but pocketing any profits as security….
From the looks, of it, it might lose all the post earnings gain within the next days…
META was the bad boy for the week, losing more than 6% post earnings. Selling off just before previous high. Likely lower level at $545 if it goes further south.
AMZN gapped up after earnings but enable to break previous high. As is it is facing resistance at $200 level. If it can’t break it it could be back to $195-197 level. We saw in July, it went sideways on new highs and then sold off.
There you go, does not look to well for most of Mag 7 for now. However, the election results and post market reaction can throw out all technicals and just move along where the market wants to drive the market.
For now, NQ support at 20,000 and resistance at 20,700, moved higher from 20,600.
Trading range for the week is between 19550 to 21600.
HANG SENG INDEX (20506)
HSI had a choppy trading week, going to a high of 20890 early part of the week and a low of 20,270 mid week before recovering by Friday. It is somehow still ranging at the moment with support still at 20,000 level. The only risk is of course the market reaction after US election results. As this week is also the National People’s Congress will take place in Beijing from 4-8 November for the widely awaited details and approvals of the economic stimulus. Something definitely will come out of this meeting, just that it might have some frictions with the effects of the US election results. In any case, if you are in profits, keep a tight stop in case HSI goes south.
We are still bullish on HSI for a longer term view. Next target level is still at 21,000.
OPTIONS TODAY - BULL PUT SPREAD ON MCD
MCD sold off about a week plus ago because of news of ecoli in its burgers which has caused some death, sickness and store closures. Being in the food industry, such kind of contamination are not unheard off, even in the car industry there are constantly recalls due to faulty parts and so on. So was the selloff overly done? By being slightly bullish on MCD, I would say so… recall, VISA sold off last month on news that the DOJ will sue Visa and look where VISA is now. Back to where it was before the sell off.
MCD has stopped the decline in the past 2 days and may have found some support at $290. We will enter into a highly aggressive delta trade by placing the short put strike at Delta 40 with a $5 width strike.
Trade Entry (DTE 20 Dec)
Sell a put at strike $290
Buy a put at strike $285
Premium collected $180. Maximum loss $320.
(adjust the prices when market opens as it seems MCD is going down further)
Trade Management
As we are doing a high delta trade, we want to exit the trade if MCD price recovers fast. Exit when you get 25% of the max profit if it reaches within a week of trade. Otherwise, exit on 50% of profit reached.
If MCD goes below the short strike of $290, roll forward immediately for 1 month to get more premium. We do this to give more time for MCD to recover and not letting our trade goes ITM with a loss position. With this you will need to stay into the trade well into January monthly expiry.
Alternative Trade (even more aggressive)
On top of the Bull Put Spread, we add on the trade with a Bull Call Spread.
Buy a call at $295 and Sell a Call at $300 for $2.20 debit. Max profit is $380 with max loss of $2.20.
Combined with the Bull Put Spread, both trade will have a max profit of $560 with a max loss of $540. Almost a 1:1 ratio trade.
Exit, on 50% profit of the combined trade or if 25% of the profit can be achieved in a quick time within a week or two of trade entry.
OPTIONS TODAY - TRADE UP DATE JADE LIZARD ON TLT
Long Term rates spiked again and the bond prices crashed again last week. It can’t go any higher and should hold at the high of 4.7%. With the expected cut of another 25 bps on 7 November, the long term rates may taper off a bit. Our trade is in slight loss but the past price action is good for the trade as it is still above the short put strike price of $90 and coming into oversold territory, ripe for a rebound just closer to the trade expiry of 11 days.
OPTIONS TODAY - UPDATE IMBALANCE IRON CONDOR NVDA
NVDA just won’t die, although it has retraced from the high of around $144, it came close to $132, our short call strike. We just need another heavy selloff below $132 and our trade is ready for profit taking.
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