Weekly newsletter of MYstylework - Issue #72
REALITY VS EXPECTATIONS
REALITY VS EXPECTATIONS....
It was a good break for the family after 10 days of lazing around doing nothing. As we could not really fly overseas, we did only a local trip down south. One thing which I noticed during this trip is the Reality is our wallets are becoming smaller by the day. The Expectation is that staying in a large city like Kuala Lumpur is expensive, think again as things are also not cheap outside Kuala Lumpur anymore, thinking if we went to a smaller city, prices would be more reasonable but no no...it's the contrary, in fact more expensive!!!
I wonder if it is because the southern region custom to more Singapore visitors which exchange rate is much stronger than ours 3.21 Ringgit to one SGD. So traders just hike up a bit of their prices to make more... I really pity those poor Johoreans or Malaysians who have to bear with such high cost of living, even higher than KL. No wonder, they brave the causeway jams everyday going over to make a living in Singapore because they probably won't make enough staying put at home.
At weekends, you see a furrow of Singaporeans flocking the city and I can say, it's really a lot... I've also not seen so many car washes in one area and these are mostly full... It is really good for businesses and that only means one thing...things here is really cheap to attract so many of our neighbours coming over.
On the contrary, when I crossed over to Singapore, I felt really small as I have to pay everything at 3.2x more... In Malaysia I pay RM10 for a meal at the foodcourt and in Singapore I pay SGD10 for a meal... our currency is really pathetic. We increased our interest rates multiple times this year and our currency devaluated against SGD and also USD... I guess the story won't change as those earning RM will continue to feel the devaluation year on year.
So how do you get out of this situation for the Malaysians? One thing available to all is to start to generate income in foreign currency... trading or investing in foreign markets like US and Singapore is the easiest way to make foreign income with limited capital and also you can start quick fast. The learning curve does not take years but you can do it in months. For those who is already going this KUDOS... for those who have yet to, you better start evaluating your options as the facts won't change and will become worse. You will become poorer by the day as inflation and devaluation on MYR continues.
If you know your course is a bad one and not change, you are headed into trouble....
SPX - 3961
It was a good runup for the week as S&P 500 was up 2.55%, 98 points. The profit taking came through on Friday as it retraced almost 1% before close. Although, SPX closed above 50MA and also above the previous high, we would expect that it will continue to retrace back below 50 MA this week as daily Stochastics remains oversold and this Thursday 28 July, 2am (Wednesday Trading Day) is the Feds Fund Rate for the determination of the next interest hike.
Further, major corporate earnings is expected this week and that will also rock the volatility a bit. GOOGL, MSFT, V, MCD, UPS on Tuesday, META and SHOP on Tuesday, PFE, AAPL, AMZN, MA on Thursday and PG and XOM on Friday, it's a powerhouse week.
Risk on would probably kick in until Wednesday's Fed meeting so we placed some bearish hedge last Friday on the QQQ and also SPY. We will likely take them off before Tuesday close if it is into significant profits or other way.
This week's SPX trading range would be 3850 to 4100. SPX may fall back below 50 MA and trade to the lower range before the Fed meeting and may rally up again if the rate hike is maintained at 75 bps instead of a more aggressive 100 bps hike. Lets see how it goes, again book in your profits early before the announcements and keep the trades light.
NDX - 12396
NDX closed 12,396, up 3.45% or 412 points. The highest it went was was 12,662 before giving it back before close on Friday. The upward momentum was as we anticipated as there was nothing much happening last week apart from the bad earnings of SNAP (-$6.39, 39%) which caused a selldown in FB (-$13.90, 7.6%) and PINS ($2.83, 13.5%), which also spooked other NASDAQ counters, GOOGL, AMZN, AAPL rally was all cut short.
If the Fed does not do anything contrary to market expectation, ie. raising interest rates of 75 bps and nothing more, we would expect that the NDX to make its recovery upwards. A slight retracement may kick in with support at 12,000 and if it holds, we would potentially see NDX hitting higher highs towards 100 MA at 13,000 level.
Nasdaq expected trading range this week is 11950 to 13100.
COVERED CALLS - OVERBOUGHT STOCHASTICS
We continue to go into strategies involving overbought positions. Last week we explained the credit call spread (Bear Call Spread). This week, we will do a covered call. When you have 100 shares of a stock, you can earn additional premium through covered call strategy.
Covered call is also a protection strategy to reduce losses of your 100 shares when prices retraces...the premium earned from the short call will cushion some of the temporary losses from the shares.
TRADE SET-UP
Sell a OTM Call with every 100 shares owned.
The Call delta can be between 20-30 Delta. The higher the Delta, the higher premium but will limit the upside of the 100 shares, as profits is capped at the short call strike.
Period Weekly, Monthly DTE is possible.
WHEN TO DEPLOY
When the stock is overbought (stochastics above 80)
When the stock has rallied and hitting resistance level
When IV is high
EXIT & TRADE MANAGEMENT
Exit when the extrinsic value has diminished by buying back the call. You may let the call expire worthless if it continues to be OTM. However, if the share price is close to the OTM call, it is better to close the trade instead of letting it expire. You may continue to roll the trade for a new DTE if the price action is still valid.
If the short call strike is breached, you may roll forward the call to buy more time for the stock price to go back below the call strike. Highly likely you may still roll for additional credit if stock price is close the the short call strike.
Exit when the price action no longer support a bearish movement for the stock, ie price action becomes bullish.
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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.