Market comments 20220326

It was a relatively tough day today to select a trade as I disregarded many of the opportunities due to upcoming earnings. The market has gone further up and the VIX dropped under 21. I do not believe that this is the right time to load up on positions.

I looked at a couple of very interesting stocks (#MOS, #AA) but did not want to take the risk with either of them due to the size of their rally over the past two months. Both of them have gone through the roof over the past couple of months. Mosaic, for example, was trading at under $40 at the end of last year and it's currently at all-time high. It was very tempting to sell call option against it but movements like this are quite intimidating and most often I rather stay away from them.

So what's my trade for today?

#XBI ( #BioTechETF ). As it's an ETF (and not a leveraged ETF), we have a reduced risk of extreme movements, like Moderna ( #MRNA ), but still has a high volatility, which means more premium.

It's always important to stay small with our positions and it's especially true for this one. Looking at the $75 level on the monthly chart we can see that there is a fairly strong support level so even though the 1SD (Standard Deviation) is at $79, I wanted to be more cautious and went to $75 with a probability of profit (POP) at 87%.

The stats

Trade Type: Short Put

Strike: $75

Expiry: 20 May

Delta: 13.2

IV Rank: 56.4

Premium: $1.13

Cap Req: $755

Annualised Prof at Expiry: 273%

Let me know your thoughts.