Weekly newsletter of MYstylework - Issue #63
NO PAIN NO GAIN...
NO PAIN NO GAIN...
This is a common phrase we hear. It involves pain before enjoying the gain. What kind of pain would you endure to get pleasure in the future?
Some people run away from pain and would want to get the pleasure immediately.... In the weight loss industry there are a lot of companies promoting immediate results without enduring any rigorous exercise or even diets. Well most of them would give temporary weight loss and tricks you that their program is working.... mostly just draining water from your systems to give you a lighter and trimmer feel.... you would also be lucky if you don't damage a kidney in the process...
Reality is to get results and results that last...there is likely no way to go about it without some effort or lots of pain... the more effort, the more pain...the more we get to absorb eventually and benefits would be more lasting...
In the financial world, it is the same...those investments which promises 20% quick no effort returns would likely end up in a bad way...look at what happened to Terra USDT and Luna... Many billions wiped out in just days and has affected many people around the world.
Instead of putting your money on something which just promises you immediate gain, take-up a skill that you have full control to determine if you can make 20% per annum or even 20% a day! Trading and investment is of course one of that lifelong skill you can learn....Even if you take 2-5 years to master it, it is ok...because once you have it and do it right, it can then help you print money....that's the gain we are talking about that every trader/investor aspire...
Endure the difficult things first....before it get easy...
SPX
7 straight weeks down....talk about a painful market. This is even worst than the Covid crash which just took us to the bottom within 5 weeks and then the market super boosted to the moon...
When will the pain stop? Well, it will stop when all who cannot take the pain would have jumped out of the boat...that is to cut and sell off their positions... From last Friday's price action, it seems near. SPX dropped to all time low for the year to 3810 before it bounced off strongly in the last hour of the trading week, closing the week with a bullish pinbar with a long tailed wick. The market seems to be holding up at below 4000 points and seems to want to keep the head above water, threading water strongly. Perhaps the bad news coming out of the retail sector had taken the market down for the week.
I am also tired of the weekly lows and need a little breather and I guess majority of the market feels the same. The market makers had their full 7 weeks and I think their game is up and they have made their point to dip buyers...who have lost many of their bullets for the past 7 weeks...
If you have a decent portfolio, you would have seen that the losses would have tapered down slowly. As at last Friday, even if the SPX had went down to 3810, the losses in the portfolio seems to be very little vis-a-vis the drop in the market...maybe a sign of capitulation is near.
With the bullish sign there, lets hope the market recovers and not just another dead cat bounce and going into bear territory. Trading for week to be around 3650 to 4050 range.
NDX
AAPL has lost its nuts going down 9.50, 6.5% for the week, more than the NDX drop of 4.45%. It's crazy how good and bad stocks get hammered during this retracement. Nevertheless, NDX had been going up and down intraday 100-200 points, which makes everybody crazy whether to buy a put or buy a call... even delta neutral trades get clobbered during big swing down last week.
As we have said since months, trade lightly and get in and out of positions quick. Intraday would be best as we do not know which direction the market wants to go the next day. However, this is a problem with smaller accounts with pattern day trader rules. ie. below 25k accounts will be flagged if they trade more than 3 intraday trades on a rolling 5 days.
We have also reduced the number of outstanding trades during volatile times like this.
As like SPX, NDX also closed higher by 340 points in the last 3 hours of Friday, closing at 11835. It closed above last week's low of 11692. The price action looks good so far, lets see how it holds up in the coming week. NDX trading range for the week is 10850 and 12400.
TRADING IN HIGH VOLATILITY
- ROLLING DIAGONALS
Following on with our Diagonal Strategy, we now speak about rolling of the near term expiring option. Remember in a diagonal we have 2 legs:
Leg 1 - Further Term Call Option
Leg 2 - Near Term Call Option
When the near term call expires or near expiry where the extrinsic value remaining is small, 0.10 or less, we may start to make a rolling trade to collect more premium.
Eg. On 20 April we did a diagonal when MSFT was trading at $286.41
Buy 19 Aug DTE 245 ITM Call (Delta 82) for 49.43
Sell 20 May DTE 300 OTM Call (Delta 30) for 4.90
Net paid 44.53
On 20 May, MSFT price has dropped to 257.90
Leg 2 - Expiring 20 May is valued at 0.01. We can roll the trade down to 270 collecting additional 4.24 premium with a 17 June DTE option.
Leg 1 Call value has now dropped to 28.50 (losing 20.93 from initial entry) and netted with the credit received (4.90 - 0.01 closing cost) = 16.04 loss as at 20 May. But we are still collecting premiums on 2nd rolling of 4.24 to continue to reduce the cost base of the long dated option.
If we bought 100 stocks instead of doing a diagonal, the loss would be 28.51, which is much higher than a diagonal.
In a diagonal, we continue to do the rolling collecting more premiums and if MSFT price recovers over time, the long call value will go back up but we get to keep the previous premiums received. If we roll monthly, we can roll at least 3 times in this example.
The rule on rolling is of course not to roll at a price below the long dated call. ie. below 245 and to exit the trade one month before expiry of the long dated call or when 50% of the max loss is incurred or the price action is no longer valid, ie. MSFT is not expected to bounce back up.
It may sound complicated at first and to practice, use the "On Demand" backtesting function on Thinkorswim platform. This way you can move back in time 4-5 months back and test the rolling on each monthly expiry to see how the trade and P/L behaves.
TRADERS TALK
We covered Diagonals in our previous Traders Talk. Go watch the video here.
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 47 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.