Market comments 20220812

Another big rally in the overall market today. I have no words. Just questions, which those who follow my daily comments already know.

Let's take a look at the movement in the past 1 month.

Now let's compare it to the 1 month straight after the market hit rock bottom due to the artificial shut down of the global economy (Covid):

Past 30 days: +15%

Covid jump: +21%

The rapid recovery from the global shut down in 2020 was due to the significant cash generation and handouts in many countries, which lead to the crazy inflation we are suffering from at the moment. In other words, both the market collapse and the rapid recovery were completely artificial.

So what about now?

The inflation is not artificial. It's real. Just go and do some grocery shopping (if you find a grocer who hasn't gone bankrupt yet because they couldn't source products and their shoppers' basket value halved because of the inflation). But despite all the fundamental and very much real economical and geo-political problems we have just witnessed a stock market rally similar to the one during Covid.

Where does this lead us?

Nobody can tell, but I am certainly a lot more bearish than bullish and I expect the market to pull back. My personal challenge is that I have been saying this for 3 weeks and it hasn't happened. Well, let's wait and see what next week gives us.

So what's my trade for today?

#SHOP (#Shopify). As the VIX has dropped from the low 30s to below 20, it is increasingly more challenging to find stocks with high IVR and no earnings in the coming 6 weeks or so. SHOP is one of those rare ones so I am comfortable allocating a tiny portion of my portfolio to a naked put well below the current price level. The chart below shows that the stock touched $30 a few times since May but never crossed it. I could have also sold a call option against it but considering that only 4 months ago the price was 85% higher I do not feel comfortable taking a risk to the upside.

The stats

Trade Type: Short Put

Strike: $30

Expiry: 16 Sep

Delta: 10

IV Rank: 58.1

Premium: $0.45

Cap Req: $305

Annualised Prof at Expiry: 154%

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.

Closed:

https://www.tycoonitos.com/community/market-comments/market-comments-20220805

Rolled:

https://www.tycoonitos.com/community/market-comments/market-comments-20220613

https://www.tycoonitos.com/community/market-comments/market-comments-20220421

https://www.tycoonitos.com/community/market-comments/market-comments-20220520

https://www.tycoonitos.com/community/market-comments/market-comments-20220524

Let me know what you think.