Weekly newsletter of MYstylework - Issue #82
WHEN ALARM BELLS DOESN'T RING A TONE
WHEN ALARM BELLS DOESN'T RING A TONE....
I am getting my money worth for my Netflix subscription as I bummed on the couch for whole Sunday night watching some good movies. Some people really maximise the use of stuff they paid for but for me, I can pay for something but don't even use it. That's really smart for companies who move into a subscription model because many people continues to pay for their subscription even when they don't use it, especially when the price is negligible over the value you can get out of it. One good example is Netflix because the fees are really that cheap that people hardly bother to cut it even if they don't binge on the TV everyday. They watch one or two movies and that will cover for the monies they paid for.
This week, I watched WIRECARD - a German Fintech payment processing company that created one of the biggest corporate fraud in Germany. This started with alarm bells of it being a fraudulent company by some short sellers and later Financial Times and nobody believed it until some years later when Ernst & Young announced that $1.9 billion EUROs in its bank account was inexistent. That made the entire company to collapse and it went into insolvency and $20 billion of investors money was wiped out from the stock market and the short sellers went to the bank cashing in. WIRECARD was one of the darlings of the DAX and it is real that the stock market can be filled with hyped stocks which can one day go down to zero. So invest with care and when a stock is too hyped up and alarm bells starts to ring, that's the time we need to be careful....
SPX - 3639
The bull got a whack down by the bears following the jobs report on Friday. Not that it is a bad job report but in fact a good job report, where unemployment was lower than expected (3.5% vs expected 3.7%) and a raise of non-farm payroll by 263,000 jobs again higher than expected of 250,000.
So why does a good economy with expanding employment and low unemployment causes the market to freak out? The answer is there is not enough pain in the economy....recall the Federal Reserve statement earlier last month.... "We will do whatever it takes (hike rate) at the expense of the economy and this will inflict pain to some people". The Fed wants to soften the economy to bring down the inflation and the jobs report data does not show that the economy is softening and as a result inflation may still be high... and the concern now is that the Fed will continue to hike rate as aggressive as previous or even more aggressive, the next rounds.
So remember guys, BAD news is GOOD news for the market! The market acts in a strange way... 😅
SPX is back to where it was before the mini bear rally again challenging the 3600 level. Again, we will monitor the price action if this level holds or breakdown following the CPI inflation report coming on Thursday, 13 October. A higher than expected inflation will bring the market down!
This week's trading range is 3500 to 3750.
NDX - 11039
NDX closed relatively unchanged, up 68 points but recall mid week, it rallied 6% and practically lost it all by end week. It's like the market having an emotional surge, one minute it is happy and one minute bursting in anger.
We can monitor the market emo using VIX. VIX is now at 31 and spiked from 28 earlier of the week. Nevertheless, the levels are still lower than the lows back in end September bottom. The market have got rid of a lot of the weak hands and as a result we do not see extended spikes for long even if market have big down days. There is a separate volatility index which monitors Nasdaq 100 index which is VXN but we hardly look at this as VIX would be good enough to monitor market volatility on an overall basis.
NDX is again sitting below weekly 200 MA and we need to see it going back above weekly 200 MA to buildup a strong support bounce for the 3rd time at this level.
The forthcoming CPI may not provide a good data to show that the rate hikes is working its way to stem inflation. This is because rate hike alone will not cause lower spending because of events beyond spending like high oil prices, supply chain and overall global economic issues.
We expect this week's range to be at 10550 to 11500. Futures opened red on Monday.
SYNTHETIC STOCKS
With stocks prices coming back to its lows, it may be an opportunity to buy fundamentally strong stocks at these levels. However, there are still some risk that stocks can go lower due to overall market decline.
To reduce risk instead of buying stocks, we can structure out synthetic stocks using options which gives us the same price effects as stocks. ie. if stock price goes up $1, the options price also increase by $1.
To structure a synthetic stock, we buy an ATM call and sell an ATM put, which gives us a Delta of approximately 100. The risk profile exactly mirrors stock.
The benefit of synthetic stock is the lower cost base. Example if we structure out a synthetic stock on AAPL which is now trading at 140.09. We enter into a synthetic by:-
Buy 1 Call at Strike 140
Sell 1 Put at strike 140
Same DTE 17 Mar 23 (158 days)
For a total debit of $2.28
Trade Delta is 100.82
Buying power $4263.30 (vs $7000 for 100 AAPL shares)
An alternative structure of a synthetic stock is to sell an OTM put instead of an ATM Put. The call leg is still the same ATM Call. This structure our unlimited loss at expiry will kick in only at prices below the short put strike. Losses are capped to the trade debit paid if share price goes below but still above the short put strike at expiry. Buying power is also reduced by using OTM short puts.
Often, we use this structure more to finance a longer term call but would be more appropriate to use after we have bottomed out or when a new uptrend is formed. Recall the last bear market back in 2008/09 were followed by a 12 year bull run. So there is no rush to deploy such strategies but just learn it and include in your strategy arsenal and deploy when the market is conducive.
Tik Tok Videos
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5 ways to reduce cost of calls. The ultimate traders' guide. #optionstrading #optionsstrategies — www.tiktok.com TikTok video from mystylework.trade (@mystylework.trade): "5 ways to reduce cost of calls. The ultimate traders' guide. #optionstrading #optionsstrategies". 5 Ways To Reduce Cost Of Calls | options trading | traders | .... Lazy chill out, romance overseas celebrity, 10 minutes(1019319).
Trading options with 68.2% probability using Expected Move 😎 #optionstrading #trading101 — www.tiktok.com TikTok video from mystylework.trade (@mystylework.trade): "Trading options with 68.2% probability using Expected Move 😎 #optionstrading #trading101". Expected Move | How to trade options | trading options | .... Corporate Uplifting Inspirational Motivational Pop Rock Piano Violins Theme Song.
mystylework.trade (@mystylework.trade) on TikTok — www.tiktok.com TikTok video from mystylework.trade (@mystylework.trade). Butterfly Trade | How to setup low cost high returns options trade | Learn to trade options | .... Lazy chill out, romance overseas celebrity, 10 minutes(1019319).
Winning Options Strategies everyday. Creating high probability low risk trades 😎 #optionstrading #optionsstrategies #elonmusk @tastytrade — www.tiktok.com TikTok video from mystylework.trade (@mystylework.trade): "Winning Options Strategies everyday. Creating high probability low risk trades 😎 #optionstrading #optionsstrategies #elonmusk @tastytrade". Elon Musk | Stock trading | Another WIN 😎 | .... Sunrise.
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.