Today's movement surprised me.
After yesterday's insane turn-around I was not expecting the market to go up by another 2.24%. That's a 6.55% move from yesterday's low.
You read the headlines (which appear to be AI driven in more and more cases) and they say: "Dow climbs 800 points as investors weigh latest on Russia-Ukrain".
Hold on a moment!
Isn't the war, humanitarian crisis and continued threats supposed to create uncertainty, fear and further sell-off?
Investors and traders are better be super careful and not to be fooled by the upwards movement of the past two days.
What does that mean for option traders?
We have to watch and manage our capital reserve (we commonly refer to as buying power of bp) carefully and aim for 50%. In other words, if one has $10k to invest then it's best to have $5k sitting in cash and not get tempted by the seemingly tremendous opportunity that the high IVR across the board represents.
The trade of the day is #X ( #UnitedStatesSteel )
It jumped 10.3% today entering into a no-brainer territory for a $30 naked call.
What's interesting is that yesterday, when I saw it dropping a fair bit, I questioned why. My logic dictated that if there is a significant war then it would increase the demand for steel.
Today's movement seemed to justify my logic.
The stats
Trade Type: Short Call
Strike: $30
Expiry: 14 Apr
Delta: 26
IV Rank: 19.5
Premium: $1.15
Cap Req: $273
Annualised Prof: 320%
It may go up a bit more but normally after a large movement, like the one today, we can expect a slight correction.
Finally won!
My patience paid off.
Closed at $1.66, which equates to 30% annualised return.
Patience, patience, patience.
Waited nearly another month and rolled out Oct $22/21 for $0.11 credit.
The roll barely gave me any credits but I was able to narrow my inverted strangle to $1.
Total credit: $2.60
The massive swings continue challenging me.
Rolled to Sep $23/20 inverted strangle for $0.26 credit.
Total credit: $2.49
Rolled down the call side to $19 for $0.27 credit.
Total credit: $2.23
Rolled down the call side to $20 for $0.38 credit so now this position is inverted.
Total credit: $1.96
This trade is as challenging as it gets :)
Rolled to Aug $23/23 straddle, which cost $1.38.
Total credit still in this one: $1.58
Rolled down the call to $25 for $0.36 credit to go inverted.
Total credit: $2.96
One of my favourite stocks to trade recently due to it's high IVR but I have been chasing my tail with this one for some time.
Rolled to July $26 / 26 for $0.39 credit.
Total credit: $2.60
Rolled down the call side to $26 so now we are inverted $28 put / $26 call.
Total credit: $2.21
Rolled out to next month and lowered the put side from $31 to $28.
This cost a $1.47 but allowed the risk to be reduced by $3 (move the put down).
Total credit: $1.70
Rolled down the call side to $28 so now we are inverted (the call side is lower than the put side).
I could have rolled to June but wanted to see how this trade turns out if I stay in May.
Total credit: $3.17
Rolled down the call side to $31 so now we have a $31 straddle.
Total credit: $2.73
Rolled down the call side to $34.
Total credit: $2.23
The massive rally continued so I had to roll up this position to May.
Considering the size of the upwards move, I believe that it should come down sometime in the near future so I left the put side on $31 and rolled up the call side to $37 for an additional $0.40 credit.
Total credit in this trade so far: $1.93
This trade became a bit of a challenge as the stock price keeps going up.
For this reason another adjustment was needed so rolled up from $26/32 to $31/34 for $0.33 credit.
Such a narrow strangle doesn't feel comfortable but fingers crossed.
The stock continued moving up heavily so it's time to roll this one.
We need to move from the naked call to a strangle to give us more flexibility.
So the call position is rolled from $30 to $32 and the cost is being offset by selling the $26 put.
The stats
Trade Type: Short Strangle
Strike: $$26 / 32
Expiry: 14 Apr
Delta: -29
IV Rank: 35.2
Premium: $3.2
Cap Req: $496
Annualised Prof: 561%
What we must keep in mind is that the original position generated a loss of $2 so we need to try to close this position under $1.2 (3.2-2).