Monthly Report for January 2023

MONTHLY MARKET SUMMARY FOR JANUARY 2023

As the market recovered most of its December 2022 losses in January, we can now see three consecutive candles on the monthly SPY chart with their entire bodies above the descending trend line that was broken in November. This could indicate that the market is transitioning from the extended down phase that defined most of 2022 to a lateral consolidation.

The psychologically important resistance level at 400 was broken out once again, and it's now a question of whether the resistance will turn into support and hold on the next pullback.

However, this is still a news-driven market, and the resumption of the long-term uptrend will be highly correlated with economic data and interest rate changes.

Monthly market performance (January 2023)

– S&P500 (SPY) +6.29%
– Nasdaq100 (QQQ) +10.64%
– Dow Jones Industrial (DIA) +2.87%
– Small Caps (IWM) +9.82%

With the S&P500 posting impressive gains over the month, we can see how strong the rotation into small caps and big techs was, with the Nasdaq100 achieving a double-digit percentage recovery.

The Market Volatility Index (VIX) remains relatively low, closing the month just below the 20 level.

MONTHLY TRADING SUMMARY FOR JANUARY 2023

Last month's update of the trading activity within the Options Trading Club (OTC)

One of the most remarkable features of the Wheel Strategy is that it allows traders to modify how they use it based on market conditions. While the market was trading down in 2022 and several of my short put positions were assigned, I took the opportunity of selling covered calls against the shares to generate additional premium and reduce their adjusted cost basis. As the market appears to be nearing a bottom in early 2023 and many quality stocks are trading at bargain prices, I decided to start selling more cash-secured puts with some of the available capital and stop selling covered calls so that the shares in my portfolio could run free without any upside limitation.

On January 17, with the stock positing a hammer candle after pulling back for a few days in a row, I sold-to-open a HPQ 02/17 CSP $26 for a $0.38 credit, with a projected AROI of about 17% in 31 days.

The stock continued to fall in the days that followed, until it finally bounced and began to trend higher again. At that point, I was able to exit the position while keeping nearly 80% of the original premium in only 30% of the trade duration, achieving an annualized return of +39.5%, which was significantly higher than the projected one at the start of the trade.

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January 2023 was another 100% win ratio month for Trader64, one of the amazing moderators of Options Trading Club (OTC).

This is what he wrote inside the community at the end of the month:

"The mim-trading-journal portfolio had another profitable month!!! We closed 9 trades during the month with a 100% win rate with an average AROI of 250% and generating $186 in cash if you had traded a single contract with each trade... Once again we have almost paid your annual fees for being part of the OTC!!! I wish there were more trades for us to take each month, but the market conditions are just not producing trades that meet the MIM criteria... We will see what February brings..."

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In January, RoRo, another of the outstanding moderators of Options Trading Club (OTC), started one of his fascinating challenges, this time focused on earnings trades.

This is how he introduced the Earnings Trade Challenge inside the community:

"It's earnings season, and what better time to test our option trading skills than with a brand-new challenge. And not just one, but a number of different challenges each and every week.
Welcome to The Earnings Trade Challenge.
Every Sunday, I will post a handful of companies that will report their earnings during the upcoming week. This is a paper trading challenge, and your account will have unlimited funds (no margin allowed), so you can choose to trade as many or as few of the stocks as you want, using any option strategy you prefer. However, you will be limited to only one contract per stock. Buy a Long Call, Sell a Short Put, put on an Iron Condor, Broken Wing Butterfly, Credit Spread, Debit Spread, Strangle, Straddle.......whatever you want.
Each trade you open has to be posted at any time during market hours, before the earnings report is announced. You will be required to post the stock you are trading, the option strategy you are using, the expiration date, your strike prices and the credits and/or debits incurred, and the amount of capital that you have at risk.
You may choose to close your trade at any time after the earnings announcement, posting your results during market hours. All trades will be automatically closed at the end of the trading day on Friday, marked to market. Some trades could be open for five days while others might only be overnight.
Each week will be its own round. Each company will be counted as a separate challenge. Participate at your own pace, whether it's one trade or a dozen. Each trade will go up against any other trade in that stock. Winners will be announced every weekend based on Best Return On Capital for each of the stocks traded.
Earnings season is always an exciting time. Now you have a good reason to test out those option strategies you've been wanting to try".

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Take care

Gianmarco