OI, its difficult to figure out what the markets are going to do leading into Tuesday and Wednesday's Federal Reserve Meeting. Do you have any thoughts on it?
I've closed that one out on Monday along with a lot of the March calls. By the close of Tuesday, all I had left on March calls were JPM, and those were stopped on 3/14. I'm holding all April calls with the NVDA Mar wk4 255 calls that are showing a loss too. That loss on AVGO took a good chunk of my gains this week. I'm only looking at +1482 in locked in profits for the week, and this was coming from a nice gain of +3800 when I closed a majority of the March options on Monday including BZUN. The only one that is really running for me right now is the SQ Apr 50 calls I bought under $2.
Sorry but are you betting on direction or implied vol or some other parameter which you think you are pricing better than the market makers/ other traders...
Well, the market initially reacted positively to a tamed PPI on Tuesday before the rumors of all the shuffling in the white house continued to dominate headlines. CPI numbers were generally in line too, but that didn't move the market much. This leads me to believe that if Powell's first meeting can go smoothly and they kind of kick the can down the road in terms of not revealing how many rate cuts they plan this year, then we should get a nice rally leading into earning reports in mid-April. On the other side, if Powell gives any small indication of 4 rate hikes, I think the market is going to retest some lows. It's already shaky as it is even though I still see the market in a rally because the Nasdaq and Russell 2000 are holding the lead. These two have been strong lately, and I have used the Nasdaq as my leading indicator on whether any rally will hold for right now. I also like the Dow transport's price action yesterday where it's sitting just under that 50-day ready to make a move. I've seen articles and on cnbc/bloomberg that a 0.25 rate hike this week was at 90%, so that's a given. Look for the commentary on whether Powell points to 2 or 3 more for the year. We hear news towards 2, and this market should be higher by next Friday. We hear 3 more rate hikes and we're going to get an adjustment in the market to fully factor that in.
It's all directional. I'm betting on momentum in each of the short term calls, and chart pattern breakouts in the longer dated options. Ex. NVDA's current play is purely on its breakout of record levels and momentum overshooting that creates a couple more days of record highs before flattening out. I'll also look at earnings momentum over playing too. A lot of times stocks will continue in the same direction as the post earnings move for a couple of days. It used to be about 1.5-2 weeks before they break that direction, but I've learned the hard way on ANET puts recently. As for longer date options, I'm looking for base breakouts like MSFT, SQ, and PYPL. In this case, SQ broke out of that 48-50 range and just shot up to 55 last week. MSFT broke the $95.5-96 highs, but onlyl touched 97 before falling back below to about 94.5 now. For something like MSFT, where the share price is still very close to the break out price, I'll hold onto it and see if it bounces back. On these breakouts, my first target is about 10%, with a secondary target at 20%. Hope this helps.
If your only view is momentum, it might make more sense to just bet on the underlying. You are paying extra for theta and vol by using options which usually have a bigger spread than the underlying.
Leverage. It's always leverage. Right now, I make a gain on 60% of my trades (actual is 58%). I know that if I make 5 trades, I tend to be profitable on 3. Leverage allows me to take on all 5 trades. At $35K in the account, I can't control 300 sh of MSFT and still have funds left for 4 more positions. I know that 3 of 5 trades will be winners, but if I only have enough to take 1 position, then my odds of picking a losing trade is higher and I would have missed out on all the winners had I picked a losing position. I've got about 76 trades since the start of this year, and 44 were winners. My avg winner is +714 vs. avg loser at -446. I should come out with a profit of about +1250 for every 5 sets of trade I enter about 100% of the time, and that outcome is just better than picking 1 winner of about +714 60% of the time.
Nothing much yesterday, I did get stopped out of NVDA weekly 255 calls. That's about it. I have stops on all of the Apr calls set between 50-60% of initial costs, and most are close to their stops like MSFT, AMAT, and PYPL. Other than that, my view is still long, but I can see everything related to Trump is starting to affect the markets negatively now. It also feels like there's more to come soon too, which is why I held back against taking short term long positions yesterday into the close. The pattern has changed, and Monday isn't safe anymore with negative news coming out over the weekend now. On the SP500, I'm looking for it to put in a higher low. If that occurs, then this rally is still intact. Watch out below if we push through the 2650 levels. Yesterday's selling felt more like a tech issue especially with FB. I watched BA attempt to turn positive all day and it closed positive at the end of day. We'll get more news on Wednesday from FOMC and that should move the markets too especially banks.
SQ is getting really close to my target of 57-60. I'd look to close out if it can reach 57.75-58.25 today. That's the only one giving me gains the past 2 weeks. Everything else is showing red. I also added MU Mar wk5 $60 calls today. Looking for that earnings play heading into Thursday, and a momentum move beyond the earnings move. On the chart, this looks like a bull flag set up, but I could be wrong. The market is holding onto a thin line right now, but the rally is still there. I'm also looking at MULE Apr 40 calls. No entry yet, but if CRM is taking out MULE at a price above $50, then this could be worth an entry right now. Rumors have an announcement later this week, which could end up being tonight or tomorrow after market closes. **Added MULE Apr 40 calls avg at 2.90