Options Trading Newsletter - Listen With The Heart - Issue #147 [Options Today - Neutral Play on Crude Oil Futures]
Listen With The Heart...
Listen With The Heart…
Communication is a complex and vital part of human interaction, grounded in our five senses, with hearing playing a pivotal role. However, true understanding in communication often requires more than just hearing words, it demands empathetic listening, or as I like to call it, 'listening with the heart'.
Empathetic listening goes beyond the mere act of hearing. It involves immersing oneself in the speaker's emotions, understanding their perspective, and responding with genuine care. This kind of listening is not just about the words spoken, but about catching the underlying feelings and intentions.
In our busy lives, we often find ourselves half-listening to others, preoccupied with our thoughts and tasks. This inattentiveness can lead to breakdowns in communication. When people feel unheard, it creates emotional distances, gradually eroding relationships. A friend or family member who consistently encounters a lack of engagement might eventually close off, leading to a significant loss in the richness of that relationship.
To avoid this, we should strive to always be present in our conversations. This means actively engaging with the speaker, providing thoughtful feedback, and showing that we value their experiences and feelings. Empathetic listening is not just an act of love; it's a skill that strengthens bonds and fosters deeper understanding.
In essence, the art of empathetic listening, or listening with the heart, is a powerful tool in building and maintaining relationships. It's about understanding emotions, responding with care, and truly being present in our interactions. Let's embrace this approach to enrich our connections and enhance our communication.
"The most important thing in communication is to hear what isn’t being said." - Peter Drucker
SPX (4797)
SPX has broken the continuous 8 weeks of green candle on the weekly chart. It has dropped 1.5% in the first trading week of 2024. Last Friday, the Non-Farm payroll was released, with higher than expected addition to the labour market, 216k versus 168k. In addition, unemployment also dropped by 0.1% (3.6%) versus forecast. Both lead to some drop in expectation of rate cuts in the Fedwatch monitor for possible rate hikes in March 2024 (see the lower barchart in dark blue). This could ease the market a bit to a lower support of 4600.
As anticipated, we wrote last week about sector rotations where, sectors like healthcare, energy and utilities would shine a bit more in 2024. Market would tend to think the same and as seen, the first week for the sector is all green. Consumer defensive did not too bad also as we went long on WMT before year end and exited the position last week after some good gains. However, this may not hold on too long if market expects rates to be cut and the drive up for technology and communication services would continue after any possible retracement in the first quarter. Just continue to track the Fed Watch monitor to guide you on the sectors to be in. Utilities seem somewhat tradeable for a longer duration. Options, premium is not that great, so a covered call with a closer to ATM short call could compensate. Alternatively, a poor-man-covered call Jan 25, monthly roll could also give a 8-12% return a month. We will probably coverer this more in detail in our next issues in the Options Today segment.
This week CPI is expected on Thursday.
Trading range for the week is 4600 to 4750.
NDX (16305)
NDX topped and closed below the top after 9 weeks on consecutive green weekly bars. Similar to SPX retracement but NDX decline is 3x more standing at 3.09% for the week. From the last Fed minutes and also the recent jobs report, it does not bode well for the rate expectation in 2024. Market expects it to reduce, but whether the probability for a March 24 to start the process depends again on the market data as what the Fed always claim, as decisions will be data dependent. In any case, the market has already jumped the gun since July last year on rate reductions stating in 2024 and the current levels are already somewhat priced in.
How far can the tech continue to go up is really dependent on other factors such as earnings and forecast expectation. There’s not much to squeeze out a story out of rates as many had rallied past 50% returns in 2023. It’s going to be quite a selective lot in 2024 and possibility of long entry at support after a retracement.
As we are also uncertain if NDX stocks can move further up or has topped, one method we use to gauge the levels is by using the TTM squeeze chart. Trading based on short squeeze or the change in direction in the histogram bar. Last short entry on NFLX we based it on the all time high price being reached with a change in colour of the histogram. We can cover this method in our next issues, so follow closely in 2024.
In such a market, there tends to be much more work involved as compared to throwing a dart and hitting a 20% gainer as in 2023.
On the downside, NDX may be drawn towards the gap area of 15700. These kind of gaps acts as a price magnet and draws the price action towards it before deciding anything else. Possibility of doing Iron Condor and trade these kind of range or even just put on a weekly butterfly if price is good, on MNQ or QQQ, possibly.
Trading range for the week is between 16000 to 16550.
HANG SENG INDEX (16535)
As usual, HSI loses momentum on big move up losing all the gains and back below 17,000 level. On Monday, the fall continued, but we look at 15900 as the support at the lower end of the bearish channel.
As mentioned in our 1st issue of 2024, we are going to be a bit bullish on HSI/China as it is coming back to the Oct 22 lows. Any bounce above this level will be quick and fast, downside is going to be somewhat limited against to the risk/reward ratio.
OPTIONS TODAY - TRADE STATUS ON SPY IRON CONDOR
The trade is at 50% profit now with 2 weeks to expiry. Price action is still within our price thesis, now sitting around at the same price when we entered the trade. $7.71, well within our price band of 455/490. Risk is only on downside for time being. Continue to monitor the trade, possible to exit even now at 50% profit if you do not want to risk losing a winner. We will continue to hold as trade delta is only at 2, perfect for the Iron Condor, still almost neutral.
OPTIONS TODAY - NEUTRAL PLAY ON CRUDE OIL
Crude oil futures has been falling off from its previous highs of 95 and is now hovering back at the low 70s level. Last Sunday Saudi Arabia just announced that they plan to cut the prices of oil due to lackluster demand. In the earlier weeks, the Houthis attack on ships in the Red Sea brought oil prices up on fear of delivery disruptions on these waters. Earlier, the non consensus of OPEC members on production cuts brought oil prices down?? There are so much news and noise that affects oil prices on a daily basis and if we want to listen to all of them, it is practically impossible anyone would know whether it is going up or down, this second or the next.
As we have mentioned in our last issues, there is going to be a base of oil prices that works for the oil fields/producers. There is going to be a limit price for countries to feel the pinch. And if we work along these kind of bases, we can find nice spots to trade and even if oil prices move along one side quickly, there is tendency for it to be stabilise somewhere/sometime.
So unless you are a day scalper or trader, neutral trades can work well and give you less stress on market direction movements.
Iron Condor on Micro Crude Futures (/MCL) Feb 14 Expiry
MCL has an IV Rank of 50 which is good for premium selling. The current price is $72 and Expected Move till February 14 expiry is +/-$7.08 which gives a price range of $64.92 - $79.08.
Based on the CL price, the support stands at $64 and resistance at $84. With the US Government committed to replenish its SPR at $70 level which was subsequently revised to $79. At current levels, it seems attractive enough for the refill and as such there should somewhat a level of demand when prices goes down, hence supporting major drop in prices. At the other end, the lack of economic activity worldwide, especially China which is still in doldrums, might suppress oil prices from going too high. Perfect for band trading and waiting for premiums to expire.
Trade Entry
Sell Put at $65.75 (Delta 20) with $3 wide, ie. Buy Put at $62.75.
Sell Call at $78.75 (Delta 23) with $3 wide, ie. Buy Call at $81.75
Total premium collected is $90, with max loss at $210. Buying power is is only $117. Against the buying power, the return on buying power is 76% for the trade. On a similar trade on stocks options, the buying power blocked for similar trade would have been $210. The SPAN margin used in futures trading can lead to more efficient use of capital.
Trade Management
No real trade management required for the Iron Condor apart from monitoring the price action. If the price starts to test the lower price band, you may consider rolling the trade to buy extra time for the price to move back up. You may get a credit for rolling as long as price is still above the short strikes. If the prices goes ITM, depending on duration, and how much price goes ITM, you may roll at zero cost or a slight debit.
Trade management is more difficult on the upper band, but as the risk of crude staying high for a prolonged time in the current economy environment is relatively low. Other than factors such as war, disasters, terrorist, OPEC, there may be limited factors that will shoot price up within the next 37 days.
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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.