Weekly newsletter of MYstylework - Issue #71
SUMMER BREAK..
SUMMER BREAK....
Life is not all work and no play. You have to take a break once in a while. That's to rejuvenate and also to spend time with your loved ones and family. We're on a break now, but not forgetting you guys for sure. Happy trading for the week!
SPX - 3863
APX closed slightly down for the week by 36 points. After the CPI data which came out 9.1, instead of continuing the downward move, SPX had turned positive and continued on till Friday after the good retail data announced, coupled with the good results of BAC which further boosted the banking stocks. The upward move, recovered most of the losses earlier part of the week.
This week will be a relative quiet week and all eyes will be on the next Fed Fund rate decision on 28 July. So the upward momentum may likely continue throughout the week, before risk on again towards the following week's Thursday.
The next level to watch for some resistance is 3920 and the 50 MA.
This week's SPX trading range would be 3700 to 3920.
NDX - 11983
CPI came out topping 9.1% for June and a big part of the high inflation was caused by gasoline prices. As oil prices have declined in July, we would expect at the next CPI reporting in August, inflation may be lower.
Besides that, the Fed would likely maintain the 75 bps rate hike at the next Fed Fund Rate Meeting on 28 July. Market may expect even a higher one, but as CPI may have topped in June, the FED may not be over-agressive this time round.
This week, NDX is expected to hit 50 MA and based on current momentum, likely to breach and next test level would be 12,180, previous high.
We took profit on GOOGL on Monday, slightly lower but better than a loss as price tumbled most of the week thereafter, down 151 points (6.3%). Split price would be $111.78, reflected today on open.
Nasdaq expected trading range this week is 11600 to 12300. Nasdaq futures opened positive on Sunday.
CREDIT CALL SPREADS - OVERBOUGHT STOCHASTICS
In a bear market (decline more than 20%), prices does not move down in a straight line. It will even go up and rally at times, small bear rallies. We can trade with the flow but only during high probability set-ups. One way is to use the stochastic indicator and enter a call spread when the stochastic is in overbought position ie. above 80 level.
Call Spread Setup
Sell OTM Call (around delta 20)
Buy OTM Call (higher strike above the sell call) The width of strike will determine the max loss of the trade. Max Loss = Width of strike less premium received
Duration - around 45 days optimum, shorter is possible but not less than 30 days (when IV high).
IV Environment - HIGH
Premium - try to achieve risk to reward of 4:1 at least.
Exit - 50% of premium received or when price action changes against us.
Call spreads are more difficult to manage as prices tend to go up over time. bear market can be an exception but even that, at one point it has to reverse upwards. To avoid risk you may, exit earlier on 25% of max profit.
TRADERS TALK
We were off last week, view Past Traders Talk here. This week we continue to be on our extended holidays and will resume next week.
Remember to join us every Tuesday 7.30 pm on my Facebook Page. Follow-us so you will be notified when we go live! Follow and click on the notification button, so you will never miss a show.
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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.