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Weekly Report 2022-05-08

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WEEKLY MARKET OVERVIEW 

The last few weeks have been tough. A gap down four times in a row separates the last five red candles on the SPY (S&P500 ETF) weekly price chart. You might have to go back several years to find something like this.

The good news is that the $410 support level has so far held, with the weekly chart currently looking highly oversold. The weekly candles' small body and long shadows may indicate indecision, a slowdown of selling pressure, and a potential bounce to the upside.

The light at the end of the tunnel may appear sooner than you expect, but for the time being, seat tight and prepare yourself for a new roller-coaster ride. 

 

Weekly market performance (Week 18/2022)

 S&P500 (SPY) -0.16%
 Nasdaq100 (QQQ) -1.28%
 Dow Jones Industrial (DIA) -0.19%
 Small Caps (IWM) -1.28%

At the end of another scary week, the Market Volatility Index (VIX) remains rather high, around the 30 level.

 

WEEKLY PERSONAL PORTFOLIOS OVERVIEW 

Despite the difficult year so far, the level of activity inside the Options Trading Club (OTC) remains pretty high. Our mission is to provide a friendly and supportive learning environment suitable for traders with any level of experience, exchanging knowledge and supporting one another on the path to financial success.

In this context, a couple of weeks ago, one of our amazing moderators and veteran traders, launched a new challenge specifically designed around the recent NFLX massive pullback.

Here are the original rules for the challenge that were posted on April 23, 2022, inside the Options Trading Club.

"The past six months have not been good for a lot of our positions. Some of our stocks have dropped by 50% or more. Many of us have been assigned shares and we are deep underwater in certain underlaying assets. The question we all have is....What do I do now? We want to stay proactive, but how can we do that when we are so far below our breakeven. I'll admit, it's not easy to make the tough decisions when our money is at risk.

That is why I'm proposing this "paper trading" experiment to challenge everyone to get creative in their approach and try some new ideas. The goal is to turn a losing position into a winner. You can be as aggressive or as conservative as you wish.

Here are the conditions:

  1. Everyone started the week with $50,000 in their accounts. (Sorry....NO MARGIN);
  2. When NFLX was trading at $350, four days ago, we all sold the Apr 22 -280P thinking a 20% downside cushion would be a safe bet, collecting a credit of $5.00 (I don't know if that was the actual premium, but that is what we will be using for this challenge);
  3. NFLX dropped over 35% catching us all off guard. We were unable to roll out of the positions and everyone was assigned today $280;
  4. After the purchase of 100 shares for $28,000 this leaves us with a cash balance of $22,000.

Everyone begins at the same starting point. Now it is up to each individual to trade it as they want. You must work with what you have....100 shares and $22k".

 

Like other traders inside the Options Trading Club, I decided to participate in this new challenge, and over the first week I opened a short dated covered call that expired worthless after a few days.

  • NFLX 04/29 CC $235 (1 contract) for a $64 credit

 

At the beginning of last week, instead, after the price action started to stabilize a bit, I decided to go short on both the put and call side.

  • NFLX 05/06 CC $215 (1 contract) for a $75 credit
  • NFLX 05/06 CSP $175 (1 contract) for a $104 credit

Also this time the options expired worthless, and I kept the combined premium of $179. Of course it's still a long way until I can bring back this position to profitability, but the total premium of $243 collected during the first two weeks of the challenge is helping to reduce the overall adjusted cost basis and move the breakeven level a little bit in my direction.

Severe corrections in growth stocks, such as we experienced over the past few months, are very difficult to manage. But with patience and solid option strategies, there is a lot we can do to bring the odds back in our favor.

As usual, if you have any questions, just send me an email at [email protected] 

Take care and trade wisely!
 
- Gianmarco 
 
 

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