Well, the Santa Clause rally this year did not take place so is it time to panic?
I don't think so but I would certainly remain very cautious and maintain a healthy level of cash reserves in preparation for a spike in volatility and further downwards movements.
But how far can prices fall?
Nobody knows. During the GFC the SPY fell 51% and this time we are at 19.9%. However, many of the big names fell significantly more than 50% already. It is quite tempting to think that at the current price level these stocks are massive bargains but until the interest rates remain high (or go even higher) it would be too early to jump on them.
On the flip side, it is comforting to think that we have more potential on the up side than risk on the down side when it comes to these tech behemoths. For example, one could buy QQQ and take the risk of another $60 fall (50% below the peak) but have the possibility of going back near the peak in the coming years ($140 upside potential). If I was not an active options trader, I would certainly do that and just sell call options against my position for additional cashflow.
For those, who are new to my daily market comments, I place and document one trade a day with the objective of helping everyone learn how to trade options.
What's my trade for today?
#ROKU $35 put option expiring in Jan. A few weeks ago I was trading ROKU at around $55 but the price has been going down for the past 2 weeks. The volatility is very low but the potential ROI is still massive.
ROKU Daily Chart
Trade Type: Short Put
Expiry: 20 Jan
IV Rank: 17.1
Cap Req: $357
Annualised Prof at Expiry: 537%
IMPORTANT: Studying previous trades provide the opportunity to everyone to learn a great deal so I encourage you to click on the links below and digest the info.