Interim Update Aug 17-19, 2022

[SOL]

I felt like I had a nice system going with selling Puts, but this rally and subsequent downturn has me all messed up. I can't seem to time the option plays correctly in this environment.

When it comes to the market, the moment you feel comfortable, you should take to get worried. Comfort is trouble waiting to happen when dealing with the markets.

Options work, but the system won't produce the same results every month. For example, when the markets are rangebound, as was the case from June to July, one will book handsome profits on putting the simple theory of selling calls on up days and buying them back on down days and vice versa for puts.

When the markets start to trend upwards, a possible system to look at it is to sell puts on down days and use some of the proceeds to buy calls. When the markets rally, sell the puts and sell the calls accordingly to your desired profit target. With this strategy, the market doesn't have to rally too much for you to make money, as you are making money on both ends. The downside is if the market tanks you will lose on both ends, but in a up trending one will generally win with this strategy.

[LoriPrecisely]

I have scaled back STW especially SCCing. I am trying to time some SCPs coming this week I think. Prices dropped a couple of days and I feel at least 1 to 2 more days to get in. Hope to see a little rally since I will buy calls and hope to buy back puts to get those LT calls for free. Fingers crossed.

You might want to consider choosing your expiry out a little farther on your Puts, just to be safe. I had 2 expiring last week that I decided to buy back for a pretty penny.
TTD, for example: I had a $74 Put expiring last Friday, which I sold when the stock was at $75 (on Monday, I think), because I thought it would continue upward. Friday it was at $65. So, I rolled it out for a couple of weeks.

Also, buying Calls on down days is best because the premiums are lower.

[LoriPrecisely]

I felt like I had a nice system going with selling Puts, but this rally and subsequent downturn has me all messed up. I can't seem to time the option plays correctly in this environment.

When it comes to the market, the moment you feel comfortable, you should take to get worried. Comfort is trouble waiting to happen when dealing with the markets.

Options work, but the system won't produce the same results every month. For example, when the markets are rangebound, as was the case from June to July, one will book handsome profits on putting the simple theory of selling calls on up days and buying them back on down days and vice versa for puts.

When the markets start to trend upwards, a possible system to look at it is to sell puts on down days and use some of the proceeds to buy calls. When the markets rally, sell the puts and sell the calls accordingly to your desired profit target. With this strategy, the market doesn't have to rally too much for you to make money, as you are making money on both ends. The downside is if the market tanks you will lose on both ends, but in a up trending one will generally win with this strategy.

I have been doing as you say here, but the uptrend turned into a short downtrend (hopefully), and I had to adjust.

[jlhooter]

I have scaled back STW especially SCCing. I am trying to time some SCPs coming this week I think. Prices dropped a couple of days and I feel at least 1 to 2 more days to get in. Hope to see a little rally since I will buy calls and hope to buy back puts to get those LT calls for free. Fingers crossed.

You might want to consider choosing your expiry out a little farther on your Puts, just to be safe. I had 2 expiring last week that I decided to buy back for a pretty penny.
TTD, for example: I had a $74 Put expiring last Friday, which I sold when the stock was at $75 (on Monday, I think), because I thought it would continue upward. Friday it was at $65. So, I rolled it out for a couple of weeks.

Also, buying Calls on down days is best because the premiums are lower.

I am looking at expiry of 1.5 to 2 years for SCPs. When I sell the SCP on down days, I buy a Call with 6+ months expiry, and wait for the price of the security to go up enough to cover buying back the SCP and covering the cost of the Call, enabling the Call position to be bought for FREE!

For example, I am in the middle of playing Pepsi (PEP). I sold .PEP240119P160 (.<security><YYMMDD>P[ut][$]160 [strike]) for $10.54 and bought .PEP230120C185 for $4.36. I need to buy back the put for 10.54-4.36 <= $6.18 to break even and own the call for free.

What is cool is that when/if I buy back the Put I free up my put collateral and will have a significant gain on the call premium.

Based on the Put's DELTA (0.27), I expect to buy back the Put at around PEP = $190 (present price is $180.17) using very rough calculations to assume this level; I understand the model is more complex, but I roughly gauge my target price by taking how much the Put premium needs to move and dividing by delta where I calculate my target price: Todays average Premium of the Put = 8.80; it needs to move another 8.8-6.18 = 2.62. 2.62/0.27 = $9.70 which is an ESTIMATE of how much the price needs to move. Today's prices is 180.17+9.70 ~190.00. Again, I fully understand my model is wrong (but close), and can only trust it enough to feedback that I need to pay attention to this security in my spreadsheet when my estimate starts to get close.

Assuming 190 is the correct buy-back price and assuming my model is 'perfect', I would expect the call premium to be
- Today's call premium (average) = 6.05 (already up 1.69)
- Call's delta = 0.42
- From above projected security's price movement: $9.70 (to have the call for free)
- Expected premium movement: 9.70*0.42 = 4.07
- This means my expected call premium is 10.12 (6.05+4.07; give or take). Assuming this is the return, it is free and clear meaning, I would have held $19,000 in collateral to make $1,000 (5% return). If PEP continues to go up, my return increases.

I understand this can go sideways quickly and worst case I own PEP at a cost basis of 160-10.54+4.36 = 153.82. Not only will I be happy to own PEP for 153.82, but I am also happy to have learned a lesson.

Now, let's see what happens. Hope to have something soon, or NOT!! Depends on what PEP does

[SOL]

Assuming 190 is the correct buy-back price and assuming my model is 'perfect', I would expect the call premium to be
- Today's call premium (average) = 6.05 (already up 1.69)
- Call's delta = 0.42
- From above projected security's price movement: $9.70 (to have the call for free)
- Expected premium movement: 9.70*0.42 = 4.07
- This means my expected call premium is 10.12 (6.05+4.07; give or take). Assuming this is the return, it is free and clear meaning, I would have held $19,000 in collateral to make $1,000 (5% return). If PEP continues to go up, my return increases.

I understand this can go sideways quickly and worst case I own PEP at a cost basis of 160-10.54+4.36 = 153.82. Not only will I be happy to own PEP for 153.82, but I am also happy to have learned a lesson.

Now, let's see what happens. Hope to have something soon, or NOT!! Depends on what PEP does

Based on the above weekly chart of PEP, 190 is doable. It could potentially test 195. Let's see how things unfold. Practise is what turns mistakes into profits provided one does not repeat the same mistake, otherwise the word practice has to be replaced with insanity

[Yodean]

For those who use margin, have you ever negotiated your margin rate with your broker? Someone told me that these rates are flexible to a point, depending on how much margin you use, etc.

Kind of like negotiating rates with your internet provider - you threaten to leave unless you get a better price, and so forth.

[deep1nSand]

my2c: yep, BTFD is back for a bit ... best guess is a period of consolidation in equities with mild bearish bias for a bit, before resumption of bull run.

nfa ...

The bearish bias has been more that just mild so far....hoping that that the rally will continue next week. I made some big buys on Friday and DCA'd today but maybe should have waited a day or 2 more.
Well..(another) lesson learnt that I have to be really patient with the buys.

[Yodean]

The bearish bias has been more that just mild so far....hoping that that the rally will continue next week. I made some big buys on Friday and DCA'd today but maybe should have waited a day or 2 more.
Well..(another) lesson learnt that I have to be really patient with the buys.

Deploy in small lots, not all at once, as the TIT continually advises. You won't get in at the exact bottom or get out at the exact top - if you do, you were lucky. That's generally my mindset.

A year from now, I don't think you'll care that much about the price at which you bought - only that you did.

[LoriPrecisely]

I wonder if this current downturn will last all week, until the Friday meeting at Jackson Hole when Jerome Powell will say the magic words and stocks will rise from the ashes.

[George1010]

I wonder if this current downturn will last all week, until the Friday meeting at Jackson Hole when Jerome Powell will say the magic words and stocks will rise from the ashes.

Maybe Powell reinforces the sentiment that the Fed will continue raising rates but at a more measured pace, or he says something to the effect that there will be one massive one in September and then he will slow the pace down based on data. However, the former statement could have a negative effect and the latter might have a positive effect. The market is very erratic because the participants are very erratic and nervous.

[SOL]

If the next issue takes longer than two days to finish, then another longer interim update will be posted here.

Individuals are already getting nervous. Remember what we stated many times in the past; we have entered the stage of extreme volatility; hence a 1000- 1500 point pullback in the Dow should be considered a non-event.
Start getting used to pullbacks in the up to 2400 to 3000 point ranges, for very soon (V readings will spike alerting us of this upcoming change), minor pullbacks will fall within that range. Medium pullbacks will fall into the 3900 to 6000 ranges. Strong pullbacks will fall in the 7500 to 10,500 ranges.

If the trend is up, the greater the deviation, the better the opportunity.

[Centeron631]

In the recent MU update, its mentioned that risktakers can consider adding to their long positions when theres a pullback in the Dow of 500-700 points.

Just wanted to be clear on the meaning of a "pullback" here. Are we looking at it in a single day or across a larger range of days/weeks?
- eg. Dow dropped 300+ points today so i wont consider that to be valid
- however if i look across this week itself, it has already dropped 570+ points when compared to the highest point, after some up-and-down volatility. Would this still be considered a "pullback"?

It has to be a cumulative drop. So let's say the market dropped 400 points on Monday, Rallied 300 points on Tuesday, dropped another 100 points on Wednesday, on Thursday it tacked on 50 and on Friday, it shed 200. The total loss would be 350, so you would still be 150 points shy of the bare minimum needed to trigger a buy

I take it for a "pullback" that Sol is talking the close of the day figures and is saying it is cumulative - but when does one start ? is he suggesting restart the count from zero every Monday and count thru close of mkts Friday. Again where is the clarity and this even in "market Updates" where some think clarity will magically appear.

[Tobeornot]

In the recent MU update, its mentioned that risktakers can consider adding to their long positions when theres a pullback in the Dow of 500-700 points.

Just wanted to be clear on the meaning of a "pullback" here. Are we looking at it in a single day or across a larger range of days/weeks?
- eg. Dow dropped 300+ points today so i wont consider that to be valid
- however if i look across this week itself, it has already dropped 570+ points when compared to the highest point, after some up-and-down volatility. Would this still be considered a "pullback"?

It has to be a cumulative drop. So let's say the market dropped 400 points on Monday, Rallied 300 points on Tuesday, dropped another 100 points on Wednesday, on Thursday it tacked on 50 and on Friday, it shed 200. The total loss would be 350, so you would still be 150 points shy of the bare minimum needed to trigger a buy

I take it for a "pullback" that Sol is talking the close of the day figures and is saying it is cumulative - but when does one start ? is he suggesting restart the count from zero every Monday and count thru close of mkts Friday. Again where is the clarity and this even in "market Updates" where some think clarity will magically appear.

Treat my response as constructive criticism


@centeron I have looked at a lot of your questions before attempting to answer this one. There seems to be recurring theme. I don’t think you examine or evaluate Sol’s responses carefully. Notice that the individual that asked the question seemed satisfied with the answer. You appear to want things to be almost spoon fed.

Start off with by looking at the answer 10 times before asking a question. These instructions were for risk takers? So the first question? Are you a risk taker? If no, the discussion ends there for anyone question you might ask would be based on curiosity only. If you are a risk taker, how much risk are you willing to take? Risk takers usually think out of the box? So ask yourself why are you having a tough time thinking out of the box and modifying whatever information is posted in the forum to suit your trading style. If you can’t think out of the box or modify the data then you are not a risk taker and its best to sit out and follow specific trades.

Let’s look at how you deliberately attempt to confuse yourself

Sol gave an example of how things work out. Once again the individual that asked the question was satisfied with the answer

It has to be a cumulative drop. So let's say the market dropped 400 points on Monday, Rallied 300 points on Tuesday, dropped another 100 points on Wednesday, on Thursday it tacked on 50 and on Friday, it shed 200. The total loss would be 350, so you would still be 150 points shy of the bare minimum needed to trigger a buy

For the life of me I can’t figure out what is so difficult with the above answer. Its all elementary as Sherlock would say. The count began when those above instructions were initially issued; end of story

Next lets use the above example and assume the count began last Monday. In this example the Dow shed a total of 350 points, then Monday’s drop of 600 points would put the pullback in the 950 ranges. Which means individuals willing to take on some risk would be ready to jump in.

I think you are not fully ready for higher risk trades hence the need for extreme explanations. If you don’t understand something and its posted out of the Market update publication, I suggest you ignore it and focus on the MU version. It will make your life easier. Another option is to read the explanation 10 times and then put the inquiry in a question format, preferably with some plausible explanation of what you think they are referring too.

As constantly criticizing someone is not going to help, especially when it appears you are the lone wolf having issues with understanding what is being discussed.


Please think of this as constructive criticism and not as a dressing down, for that is not my intent. However, but if you continue with this line of thought, you are indirectly promoting the spoon feeding concept instead of the learning to fish concept.

[Yodean]

I take it for a "pullback" that Sol is talking the close of the day figures and is saying it is cumulative - but when does one start ? is he suggesting restart the count from zero every Monday and count thru close of mkts Friday. Again where is the clarity and this even in "market Updates" where some think clarity will magically appear.

I think you were an attorney when you were younger - if I remember correctly - so having dealt with those in your former profession, I can kind of see how you are extremely specific in how you interpret language and syntax. Not necessarily a bad thing.

As for the markets, my2c: there's the Jackson (A*s)Hole meeting coming up this Friday ... the perceived narrative coming out of that will influence short-term market price action.

Based on COT data and some others, there's a lot of positioning occurring as we speak for before and after this meeting. So, if you want to stay somewhat "safe," don't initiate big positions for the next week or two. Let the dust settle after Jackson Hole a bit ...

[MarkD]

I take it for a "pullback" that Sol is talking the close of the day figures and is saying it is cumulative - but when does one start ? is he suggesting restart the count from zero every Monday and count thru close of mkts Friday. Again where is the clarity and this even in "market Updates" where some think clarity will magically appear.

I think you were an attorney when you were younger - if I remember correctly - so having dealt with those in your former profession, I can kind of see how you are extremely specific in how you interpret language and syntax. Not necessarily a bad thing.

As for the markets, my2c: there's the Jackson (A*s)Hole meeting coming up this Friday ... the perceived narrative coming out of that will influence short-term market price action.

Based on COT data and some others, there's a lot of positioning occurring as we speak for before and after this meeting. So, if you want to stay somewhat "safe," don't initiate big positions for the next week or two. Let the dust settle after Jackson Hole a bit ...

I have a long standing debate with my attorney brother. As an engineer, we take known and assumed information and formulate a solution. As an attorney, they take one piece of data from many sources and create mulitple outcomes. It's what makes the world go round.