Weekly newsletter of MYstylework - Issue #76
NO LIMITS
NO LIMITS....
Ever been or did something without limits? Sometimes when I have the urge to eat, I go to a buffet and eat my hearts out and pay a fixed amount. Then after the first round of meal, the urge quickly goes away and I think to myself how can I recover the high price paid for the meal. Worst of all, the rest of the food not taken are not the ones I like and to stomach them just to makeup the worth is really not worth it. Did you experience the same?
This week, I also experienced something new with no limits, which is going onto the Autobahn in Germany highways. There are stretches in the highways where there are no speed limits. For those who wants to test out the breaking point of their cars, that is really thrilling. As much as I pressed hard on the pedal to "breaking speed", I thought to myself "live another day" and then kept it light on the foot. It was nice just as an experience though...
Well, in reality, there's always a limit in everything. In trading, we also have limits, eg. stop loss limits, take profit limits and even risk limits. We need to have these so we don't get out of control and it is there for a reason and that reason is to protect you. So if you are not setting these limits in your trading plan, think again and please have them set and have good discipline following them...
SPX - 4057
SPX closed down for the week by 170 points (4%). The retracement was expected since it failed to break above the 200 MA last week. The hawkish stance by the Fed on Friday just speeded it up. We expect it to test the daily 50 MA next week at the 4000 level. Once that beaks, the next level will be the 3700 level. This is a good retracement level before the next Fed Fund Rate meeting on 21 September.
Trading range for the week is between 3950 and 4150.
NDX - 12605
It's is one of the biggest bad days for NDX losing 4%, 538 points in a day. The Fed's stance to do all it needs to to stem inflation to the extent of sacrificing jobs and business is not taken well by the market. NDX may likely continue to go down easily breaching daily 50 MA next week. The next level of support is around 12150.
Non Farm Job reports is expected on Friday.
We expect this week's range to be at 12,200 to 13000. Likely towards the downside.
PROTECTION SQUAD
When the market is coming down, who do you call? Am not sure if "Ghostbusters" will help but the protection squad will sure do...
So what is the protection squad in trading?
In simplest form, buy a PUT. This gives direct and immediate result on down moves. Downside is that it is expensive to buy puts.
Here's a few tips on how to make your protection cheaper:-
a) Put spread
Buy a ATM put and sell an OTM put, same expiry date. By selling the OTM put it will make the protection cheaper. Few things to watch out though:-
Your protection is limited to the width of the long ATM put and short OTM put less the debit paid for the spread.
Choose the strike of your short OTM put to the price where you expect the stock to go to on expiry.
The max profit will be reached at the expiry date of the strike. So choose the expiry date where you expect the retracement will last. You can do bar counting based on past history or nowdays, I usually take protection till the next major news event which a bounce up might happen...
b) Sell an OTM call
By selling an OTM call, the credit received will partly finance the PUT. However, you need to make sure that you don't do just a naked call. You will need to have an existing long call below the price of the short call to go with it or an existing 100 shares for each short call sold. Also, make sure the short call sold is above the cost of your 100 shares. In event price goes up instead of down, your short call will become ITM and your shares might be called away at strike price below your cost.
c) Sell a call spread
Sell an OTM call spread. It can be just a call spread or using the credits from the call spread to finance a put.
We can do this options strategy in case of an expected retracement from overbought position or double tops forming with a bearish candlestick, I usually sell call spreads at higher deltas to get more premiums, the offset would be reduced probability. Like, a put spread, the max profit will be realised at expiry date.
Whatever methods used to take opportunity on the price downside or retracement, please review your trade position and also the duration of the protection expected. Close out your protection positions, when you expect price to reverse or the profits received is at your take-profit level.
Tik Tok Videos
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Option Trade on JD - watchlist at last Traders Talk on 9 Aug. Closed today $922 profit 🤑 #optiontrading #tradingstrategy — www.tiktok.com TikTok video from mystylework.trade (@mystylework.trade): "Option Trade on JD - watchlist at last Traders Talk on 9 Aug. Closed today $922 profit 🤑 #optiontrading #tradingstrategy". Option Trade JD covered potential trade during 9 Aug Traders Talk Entry 9 Aug Exit 26 Aug Profit $922 | watch till end to see the trade we did 😉 | Option Trades Adjustments - Based on Price Actions | .... YOU'RE MY SUNSHINE.
Hawkish remarks by J Powell crushed the market - pullback expected until Next FOMC in Sept 21. Watch for key points raised #optionstrading #optionsstrategies — www.tiktok.com TikTok video from mystylework.trade (@mystylework.trade): "Hawkish remarks by J Powell crushed the market - pullback expected until Next FOMC in Sept 21. Watch for key points raised #optionstrading #optionsstrategies". Key Points For Traders | Here's what JP said.. | > rates will go up until inflation is down to 2% | .... Flip through.
TRADERS TALK
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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.