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Weekly Report 2022-08-14

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WEEKLY MARKET SUMMARY 

After breaking through the key 400 resistance level in the the previous weeks, and a short period of lateral consolidation, last week SPY (S&P500 ETF) broke out also the new critical level of resistance at the 417 mark with an impressive gap up at the open of Wednesday's session. A modest pullback attempt on Thursday has been followed by strong green candle on Friday, signaling that bulls are now in control of the game.

As usual, previous resistance is now turning into support, and with these short-term overbought conditions, the level might be tested over the next week. On the hand, the next upside target to watch is at the spring 2022 highs around the 461 level.

Weekly market performance (Week 32/2022)

 S&P500 (SPY) +3.30%
 Nasdaq100 (QQQ) +2.69%
 Dow Jones Industrial (DIA) +3.01%
 Small Caps (IWM) +5.01%

In a bullish week for the broad market, the weekly outperformance of small caps indicates once again a growing appetite for risk with increasing money rotation in the most aggressive market areas.

After another strong green week, the Market Volatility Index (VIX) is back below the 20 level for the first time in over four months.

 

WEEKLY TRADING SUMMARY 

Here is the summary of the main events from last week at the Options Trading Club (OTC).

Earnings Iron Condors 

On Wednesday, with the company reporting earnings after the close, I opened the DIS Aug 12th 103/105/119/121 Iron Condor, collecting a $0.65 net credit. This time I decided to go with $2 wide spreads on both sides of the condor and short strikes at the expected move. The max risk ($1.35) was about 2x the max profit ($0.65), resulting in a smaller position but with a more aggressive setup (the one of a classic Iron Condor).

 

On Thursday, with prices floating around the short call strike, I decided to take off any risk and get out for a small loss, buying back the Iron Condor for a $0.70 debit. That was a conservative approach that proved to be the right decision, as on Friday the stock price closed above the long call strike, which would have exposed the position to its maximum loss. 

   

Long Options Ideas

I am primarily an option seller, and the Options Trading Club (OTC) was originally created to share information about options selling strategies and bring together like-minded traders. However, since the inception of OTC, a lot of members have requested a separate channel for simple long calls and put ideas. I didn't create it in the past because I couldn't really find an edge for these kinds of strategies and didn't want to give random low-quality ideas just to add or retain more subscribers to the community.

My main trading account (purely focused on CSPs and CCs) has been in defensive mode since the beginning of this market correction at the end of 2021. I was assigned several shares and am now waiting for prices to recover before selling covered calls against them. That gave me a few months to experiment with new ideas and strategies. One of my goals was to come up with simple, reliable strategies that beginner traders with small accounts could use.

As a result, I've been delving into backtesting (both manual and automated) and quant/algorithmic options trading tools. That allowed me to identify strategies with a statistical edge for simple long option ideas. The logic behind these strategies is to identify market inefficiencies. Essentially, automated screeners look for specific options with a current market price that is lower than their theoretical fair value based on historical data analysis.

So I started a new channel last week that is solely dedicated to simple long-option ideas. Because this is a new and experimental approach, I want to emphasize that these ideas should not be traded on a real account but only as paper trades.

Of the six ideas I posted on this new channel, half of them were losers, but overall the profit generated by the winners has been much higher. For example, on Tuesday, I proposed a simple long call idea on DQ at the August 19th expiration and $70 strike, for an entry price of $1.35. Despite the fact that I don't post specific exit alerts, on Thursday, with the stock price getting overextended on the upside, I suggested inside the channel the possibility of getting out for an outstanding +189% profit in just two days.

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

Take care and trade wisely!

Gianmarco 

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