Weekly newsletter of MYstylework - Issue #78
THE INEVITABLE
THE INEVITABLE....
There are many things which we want to avoid but sometimes somethings are "Inevitable" however careful we are. This week the family all got infected with Covid after more than 2 years taking precautionary measures. I think the same is happening to most other people, eventually THE DAY would come and we need to face it. As long as it is not life threatening, it is okay and take it as a very infectious kind of flu and experience being quarantined for a few days.
My DAY of reckoning have not come yet, not sure if lucky or my precautionary measures of having high immune system was working out. Anyway, it is also good to have someone taking care of them while being quarantined. But I can tell you, it's heck of a job doing the cleaning, cooking, washing and serving at home. Salute and respect all the homemakers, don't ever think that is an easy job, cause I'd rather go out working to make the dough!
The other "Inevitable" thing we will face is ageing. We will grow old and till one day, we will stop making active income. When that day come, you better have saved enough to take you on for the rest of your life or have a passive income set-up so that you will never need to work for money.
If you have not started to plan for this, please work on it fast. That's why I ventured into learning trading and investing some years back. This will be my plan to address "The Inevitable" of growing old and broke!
"Don't worry too much on the Inevitable stuffs, just work on the things which you alone can decide and control"
SPX - 4067
Surprise surprise, we had a strong rally week and SPX had not only breached 50 MA, it also went above 100 MA. It's up 3.6% for the week and 143 points. The 3900 level seems to be a strong support and the 61.8% Fibonacci retracement is also not to be messed with.
The next level to watch for is the 4200 level, which is another 3% up from current levels. Not that far if to achieve if it is all green for the data releases this week, starting from CPI on Tuesday, retail sales and unemployment claims on Thursday and consumer sentiment on Friday. Considering the current data on oil prices retracing and releases from major retailers that things are not as bad as expected, the positive data releases would be somewhat positive to the market.
We stopped short covering and already took some profits on some longs last week. Still hopeful to recover some ITM shorts we placed 2 weeks ago when the market was down expiring 16 September. Also, 16 September is the quarterly expiry and most of the past quarters closings was down. Let's see if it is any different this week.
Trading range for the week is between 3800 and 4100.
NDX - 12588
NDX is a different story as it is sitting right on daily 50 MA. Although, the movement on Friday was bullish most of day and closed at its highs. There is still potential of breaking above and staying above this week. With the ECB going all in right from start with 75 bps rate hike even though their economy is in a mess and likely no additional gas for coming winter with Nordstream 1 shut down, it may be unlikely for the Fed to press its brakes and reduce anything lower than 75 bps. J.Powell has already indicated that they will not stop if they don't push down inflation to 2% at the Jackson Hall Event and also recently at the Cato Institure interview last week. You can see the summary of what J.Powell said in this video. Watch here.
Levels to watch 13200 if it continues to breakout above daily 50 MA.
We expect this week's range to be at 11650 to 12800. Take opportunity on rallies this week as next week is the Fed Fund rate hike announcement. If we rally this week, take profit on your longs and chill next week.
BINARY TRADING...
Binary events are events which will or may cause volatility in a stock. It can be an earnings announcement, product launch, shareholder meeting etc. The news coming out of the binary event may bring the stock up/down or not move.
There is one thing which is mostly certain is that IV would likely to rise right till the binary event and reduce after. The uncertain part is if it moves up or down. So in normal times, we do not go on directional plays unless we are using options structures which are very cheap and with low risk.
This week, we have a look at Twitter's binary event which is the shareholders' meeting to approve the takeover by Elon Musk. Technically, it is not really an unknown event as the takeover price was already announced ie. $54.20 but it will be one of the 3 events which will need to be completed for the merger to complete. #1 Shareholder Approval, #2 Debt Financing #3 Data regarding fake accounts.
With each of this 3 resolved, it may give a temporary POP to the share price. The shares have already rallied $3.56 (9.22%) leading to the shareholders' meeting last week.
The cheap options structure which we will undertake is by using a Backratio.
BACKRATIO
A back ratio spread is a bullish strategy, which benefits from a big bullish move in the underlying. To create a backratio spread you’ll sell one ATM Call and buy 2 two OTM calls using the credit received from the short call.
The strategy is generally placed for a small credit or small debit so risk is kept to a minimal if the stock does not move. We normally place the trade with at least 60 days expiry as the options value will go down over time if it does not go past significantly above the 2 OTM Call strike price.
Tuesday, 13 September, there is binary event on Twitter. We can still enter anytime before the shareholders meeting at 10am and exit after that. If you do it on Tuesday, it is an intraday trade, watch for Day Pattern Trading rules.
Watch the video for the set-up of the Backratio Trade on TWTR. Watch here.
What we want to achieve is a quick POP above the OTM strike price of 47. We are basically playing on the movements on the Theoratical P/L Line in orange. If you keep the trade long this theoratical P/L line will slowly move down towards the green line and the worst position is going into the price range of the death valley. Hence, we won't keep this kind of trade for long as otherwise, we would need even bigger movement to breakeven and make profits, example here you see breakeven is above $50+.
For a small credit/debit, in this case $15 credit, if it POPS $2-3, we can exit with $60-90 profit. The max loss scenario is theoretical as we will not keep this trade for long.
One thing to note is on IV. The theoretical P/L line will go down when IV drops, so to avoid bigger impact on IV, we have to ne nimble and take profit as soon as we see it. Do not wait for long as the IV will decline after binary event and by then you will need a bigger move to make the same profits.
The example we structured, after hours. So on opening, the strikes may need to be changed but the principal would be the same for trade entry. Sell one ATM call, buy 2 OTM Call with the credits received. We should have entered this last week, but we still can do an intraday trade ie. enter before 10am market time and exit after results out. The webcast for the shareholder meeting is here for those who wants to listen.
Tik Tok Videos
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Twitter shareholder's meeting for takeover by Elon Musk 13 Sep 22, 10am. Lets trade... #optionstrading #optionsstrategies @tastytrade — www.tiktok.com TikTok video from mystylework.trade (@mystylework.trade): "Twitter shareholder's meeting for takeover by Elon Musk 13 Sep 22, 10am. Lets trade... #optionstrading #optionsstrategies @tastytrade". select Nov 18 expiry | Sell ATM call strike 43 | recheck ATM price on open on Monday | .... TikTok's song-like tropical house(974524).
J.Powell's Message yesterday in 1 minute... @tastytrade #optionstrading #optionstrading #stockmarket — www.tiktok.com TikTok video from mystylework.trade (@mystylework.trade): "J.Powell's Message yesterday in 1 minute... @tastytrade #optionstrading #optionstrading #stockmarket". Fed Message??? 🏦 | Responsibility For Price Stability.... | Inflation Target | .... Suns.
What to expect for this week's market.. #optionstrading #optionsstrategies — www.tiktok.com TikTok video from mystylework.trade (@mystylework.trade): "What to expect for this week's market.. #optionstrading #optionsstrategies". SPX down 141 points (3.37%) last Friday after J.Powell speech | Monday another 27 points drop | but we see some slight support at 4000 level above daily 50 MA | .... Change My Mind.
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.
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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.