Options Trading Newsletter - Placing Bets - Issue #166 [Options Today - Position Updates]
Placing Bets...
Placing Bets
Last week, the market buzzed with speculation about new millionaires emerging, as Keith Gill, also known as Roaring Kitty, resurfaced after several years. Gill famously turned $50,000 into up to $50 million during the GameStop (GME) saga. His reappearance on social media caused GME stock to surge by over 200%, igniting a frenzy reminiscent of the original event.
However, the excitement was short-lived. In less than three days, GME’s stock price fell back to its original level. While some investors made quick profits, many others likely faced significant losses. This incident underscores an important truth: the stock market is not a betting house, despite how some people treat it.
Occasionally, you might strike it rich with a single trade, but such wins are rare and risky. More often than not, the stock market requires patience, education, and a long-term strategy. Success in trading and investing is a marathon, not a sprint.
Capital preservation is crucial. Think of your capital as chips in a game: you need chips to stay in the game and make more chips. Reckless bets can quickly deplete your resources, ending your ability to invest further.
Instead of placing bets, adopt a mindset of continuous learning and adaptability. This approach not only increases your chances of success in the stock market but also in any endeavor in life.
"The stock market is a device for transferring money from the impatient to the patient - Warren Buffett”
SPX (5303)
SPX more than touched the all time high but shot way past 5264 and remained above after CPI was released. I guess the magnet really attracted it to move to that direction.
But is the fight on inflation over? Not really, April CPI was reported at 3.4% as expected and the market rallied over 1%. In fact, you see below, in January CPI was 3.1% and April’s CPI was 3.4%, which means inflation is actually not getting anywhere close to 2% target of the Federal Reserve, in fact higher than before.
On the other hand, the labour data is not that good with unemployment ticking up and unemployment claims also on the rise. With preliminary GDP data coming in end of this month, we could possibly see worst for the economy going forward as the past months GDP releases were not that great too.
The 10 year Treasury Yield has ticked up also for the last 2 days after the CPI which indicates rates are expected to stay on high for now. TLT’s rally from its lows since end of April has also stopped since after CPI release.
GLD has also ticked up strongly in the last weeks alongside the rise in the SPX, somewhat not normal. Recall GLD rallied after end of March when SPX retraced. Now it’s coming back close to its previous high and could possibly breakout if SPX could not hold on to its highs.
So far, the signs are not too positive for SPX, we could see a retracement back below the previous highs of 5264, and a double top could spark off market running for shelter. There’s no key data announcement until Thursday when Manufacturing and Services PMI comes out and some Fed Members speaking during the week. Could be a bit of sideway movement to the downside for the week, watch closely.
Trading range for the week is 5250 to 5400.
NDX (18546)
NDX recorded new all time high this week at 18669 before retracing back lower. It hit support at the previous highs during the last trading hours on Friday.
Last week saw some MEME rally on GME and AMC after the fiasco of Roaring Kitty returning with some social media post on Monday. GME rallied over 280% while AMC popped over 120%. The MEME frenzy died off within 2 days with both stocks coming back down significantly with many people caught in the drop back to reality. Stay away, far away if you do not want to get burned.
TSLA was up for the week possibly after news of the USA slapping 100% tariff on Chinese EV and 50% tariff on batteries. Not that there are any Chinese EVs in the US now and has any effect on TSLA volumes in the immediate future, but the news was all over setting a bullish tone on the stock.
This week’s earnings all eyes are on NVDA on Wednesday after close. NVDA went up to $958 last week but sold off on Thursday and Friday alongside NDX. As mentioned earlier, there could be sellers waiting at the top as so far NVDA did not hold any levels above $930 longer for a day. In any case, the earnings and outlook this Wednesday could throw this resistance out easily if they come out with something the market like, share split, buybacks, and great outlook. I would still be careful of bull traps at these levels, whatever the news though. Recall, we had a Bear Call Spread last week on SMH, the semiconductor ETF, we will cover again below.
There are a couple of Chinese stocks announcing on Monday and one particular stock I am watching is TCOM (Trip.com). Trip is in the travel service provider, just like BKNG but the big part of the business is in China. This month itself, it has gone up by 18%. As with hotel groups, travel booking sites, most have been bullish after Covid and with travel booming and China being in limelight, it could move higher if earnings and outlook is positive. The outlook should be positive covering the recent Labour Day holidays where the travel volume has surged due to the extended holidays from 1 May to 5 May in particular local travel throughout China.
Coming back to NDX, could it go higher? Yes of course as there is no more precedence at the top. But watching most of the commodities rally last week, tells another story. I would be on the safer side for now to look for retracement down to 18300-18400 level.
Trading range for the week is between 18200 to 18950.
HANG SENG INDEX (19553)
HSI is on track to move to the 20,000 level with another bullish last week breaching the 19,000 level strongly, up 3.1%. Even with the negativity from the US Trade side inciting another possible trade war, the market has brushed it off. The China government also announced measures to revive the property market by allowing local government to buy the excess properties and help developers complete their developments of unfinished/stranded projects.
The daily 50 MA is sloping up and is going to close above the 200 MA, which is another bullish sign to bring in new bull volumes into HSI. We are slowly accumulating positions on retracements as we said in the last time, using the June expiry mini futures (MHI).
OPTIONS TODAY - BEAR CALL SPREAD ON SMH
SMH is up about $7 from our entry level, +3% of our 7% insurance level at $240. The trade is taking a $39 loss for now and we of course risk it moving higher if NVDA pops after earnings. In any case, as IVR is high at 62, we expect IVR to come down post earnings to compensate any price movements to the upside. In addition, NVDA only forms 20% of the ETF. We will continue to keep the trade into earnings
OPTIONS TODAY - UPDATE ON LONG JAPANESE YEN FUTURES
This is a nasty trade as JPY looks like it want to continue dying. After PPI and CPI, JPY jumped back above the 0.0065 level but could not hold at all. As said last week, there could have been some actions taken if it moved back up, rolling could not be done with any credit so we did not roll. Cutting loss could have worked as the losses reduced with the move up. In any case, we did not do either as it seems there could be support at 0.0064 and we need only for it to move up a bit more closer to expiry. Nevertheless, we risk a full loss if it does not. We will monitor another week where it goes from here.
OPTIONS TODAY - TRADE UPDATE IRON CONDOR ON MICRO CRUDE OIL FUTURES - JUNE24
Crude oil futures rallied last week back to the $80 level. We legged out from the Bear Call Spread side of the Iron Condor at $0.03 and is left with the Bull Put Spread now. The overall trade is back into profits. We will continue to hold it but we see a bit of weakness on crude above the $80 price level. We are now at 42% profit level and if we get a pop in crude price the trade should go above 50% easily. We could exit the trade and reestablish a new IC position into July expiry at the safe side.
Checkout our Options Trading Newsletter Issue #160 for the trade analysis.
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