Weekly newsletter of MYstylework - Issue #61
PATIENCE PAYS...
PATIENCE PAYS...
One of the best discipline in investment or trading is having "Patience". In investment and trading, time is on our side because the stock market is there everyday. There is actually no such thing as miss the boat because the boat will come back the next day, the next week, the next month or even the next year. eg. many great stocks is coming back to price levels a year ago.... Have you missed anything? Not always right? Opportunity is always there in the stock market...if we miss it, there is always another stock available or another time available...
Here is the a list of price levels of FAANG now and previous date this level reached.
Not a recommendation to buy these stocks, but just shows that if you have the patience, great stocks you missed may come back one day. Of course at that time, you need to evaluate again if there are any changes in fundamentals of these stocks. Some stocks may not be great anymore like NFLX would need a bigger catalyst to go back to its previous high.
"The stock market is a device for transferring money from the impatient to the patient." Warren Buffett
SPX
SPX seems to be holding up for the week and closed 4123, relatively unchanged from last week. If you look at the weekly chart, SPX closed above the lows of 4062 and slightly above 100 MA.
To date SPX has retraced around 16% and comparatively to NDX, SPX seems to be holding better. With the big earnings announcements mostly done, there would relatively be any further big moves affected by corporate earnings like AMZN. Further, the Fed Fund rate has already been effected with a 50 bps raise and future raises may be pegged to similar rate, the prices would have probably be adjusted by now.
Trading for week to be around 3900 to 4250 range. If SPX opens higher this week, we would likely see the market to rush in the direction up. However, futures opened red on Monday. Lets see how it develop when market open Monday.
NDX
NDX has closed at its new lows at 12693, down 24% todate from its high. Although the retracement signify a bear market for NDX, it does not necessary mean that NDX will continue to go down because the NDX component stocks have already been hammered by quite a lot especially on the hype stocks which have gone down by 50% and above.
Last week we saw that in the days leading to the Fed Fund Rate hike, NDX was quite strong up but later spooked by the increase in 30 Year Bond yield to 3.14% taking the market down by over 6% in short 2 days. Comparatively between SPX and NDX, NDX tends to be highly sensitive to interest rate.
We will continue to monitor the big boys of NDX like AAPL, MSFT and TSLA which seems to be holding on going into negative territory last Friday after the selloff on Thursday.
Trading range for the week is between 12000 to 13300. Futures opened into negative territory on Monday.
TRADING IN HIGH VOLATILITY
Volatility is a premium seller's friend. Why? Because when the market is volatile, Implied Volatility (IV) goes higher for most stocks. When IV is high, Option Premium increases because of higher market risk.
For the same Delta strikes, we get to collect more premium selling options in high IV environment.
Besides, that, the other thing which happens during high IV environment is that the 1 standard deviation (SD) price movement also becomes wider. Meaning the 1 SD price range to ATM prices is bigger.
The next thing is the benefit coming from volatility crush. Volatility crush is the reduction of volatility, ie. IV reduces. When IV reduces, option prices reduces, all things equal, making it cheaper to buyback your options, even though stock prices is same.
In summary, high IV means:-
Higher options prices
Wider 1 SD
Will benefit from volatility crush
Hence, in high IV environment, premium sellers will benefit more than option buyers.
TRADERS TALK
Did you hear last week's Traders Talk?
We had a great topic and so much insight on trading was given out.
Listen to Traders Talk Series 45 if you have not done so. View Past Traders Talk here.
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THRIVE OPTIONS BUSINESS BUILDER
For those who had the chance to grab the Thrive Options Business Builder last month and had taken action, congratulations. We are excited to have you on board our advance training programme where eventually you will build yourself an Options Business generating high double digit returns but only with a fraction of capital used.
Over a period of 12 months, you will not only learn advanced options strategies, you will also be guided on execution of these strategies. We are still open for new registrations and it is not too late to learn some additional options strategies and implement them still for the new 2022 trading year.
The registration link is here.
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.