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Weekly Report 2022-11-06

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WEEKLY MARKET SUMMARY 

Following two weeks of strong bullish pressure, SPY (S&P500 ETF) began the last trading week with a small, indecisive candle on Monday. After a gap up at the opening bell on Tuesday, confident buyers decided to leave the arena, and a new wave of panic selling started to spread quickly, lasting through the entire Wednesday session and ending with a gap down at the open on Thursday. But, just like in a well-written thriller, once fear reached extreme levels, bulls returned to the game, fighting all the way to the weekly close on Friday and posting a promising hammer candle with a tiny upper body and long lower wick.

So, after a new ride on the market roller coaster, we're back in the middle of the range between major support around the 360 level and key resistance at the critical 400 level. Fasten your seat belts, because a new chapter in the 2022 market saga will begin at the opening bell on Monday morning.

Weekly market performance (Week 44/2022)

 S&P500 (SPY) -3.26%
 Nasdaq100 (QQQ) -5.88%
 Dow Jones Industrial (DIA) -1.35%
 Small Caps (IWM) -2.45%

Despite the sharp weekly decline in the broad market, the Market Volatility Index (VIX) dropped on a week-to-week basis, and is now just below the 25 level.

 

WEEKLY TRADING SUMMARY 

Small Account Challenge (SAC)

Towards the end of August 2022, we launched in the Options Trading Club (OTC) a new trading challenge. As the name suggests, the Small Account Challenge is dedicated to traders with a limited account size.

Here are the main rules for the challenge:

  • Start Date: August 22, 2022
  • End Date: December 31, 2022
  • Starting Account Size: $5,000 cash account.
  • All trading strategies are allowed.
  • Trades should be unique (not already posted in other channels).
  • The winner will be the trader with the largest account balance on the last trading day of 2022.  

Considering the difficult and uncertain market conditions, so far I have been using mainly delta neutral positions that are benefiting from an expansion in market volatility. Last week, with VIX remaining quite stable despite the sharp red days of the overall market, I decided to open an ATM long butterfly, trying to benefit from a volatility contraction.

On Thursday, with the market deeply oversold after two days of panic selling and a gap down at the opening, I opened a SPX Long Call Butterfly Nov 25th +3670c -3740c x 2 +3810c for a $8.30 debit.

On Friday, with the market gapping up at the opening bell and IV dropping as a consequence, I was able to close the position for a $9.00 credit. The $70 profit booked on an $830 risk capital is equal to a stunning +8.4% return on risk achieved in only 24 hours.

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

Take care and trade wisely!

Gianmarco 

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