Market comments 20220826

This is exactly what I was waiting to happen: the market let the steam out after Powel's speech. 3.5% drop in a day is massive and I highly doubt that this is the end of it. The market is fighting the Fed and the Fed is fighting the market. It's a big circus.

The market is expecting lower interest rates because they know that the economy is really struggling, while the Fed is trying to tell everyone that the interest rates will remain high to fight the inflation.

But here is the question: how can you keep the interest rates high when people are being laid off, companies are going bankrupt and the mortgage default rates are increasing?

The basics of market economy is that there is always a gravitation towards equilibrium. The inflation will cool down whether the Fed is doing anything or not because more and more people will not be able to purchase goods and services. This will force businesses to lower their prices and many of them will not survive the diminishing margins, which leads to further people being laid off.

So what will happen then?

The Fed will have no choice but to lower interest rates but it will be too late. So they will have to introduce another huge quantitative easing (printing money, buying equities), which will create another bubble in the stock market but won't fix the core issues.

The fact is that the Fed stuffed up big time back in 2008. They intervened at such levels that they could not get out of it since.

But because I am committed to place one trade every day irrespective of the conditions, I have my trade #129 for you.

So what's my trade for today?

#GOOGL (#Google). Fortunately the stock split enabled most people to trade Google so after today's big drop I thought it is ripe for a naked put far out of the money. At the end of the day we are talking about a company that rules the internet and will unlikely to go anywhere anytime soon.

The stats

Trade Type: Short Put

Strike: $95

Expiry: 21 Oct

Delta: 15

IV Rank: 46.9

Premium: $1.42

Cap Req: $955

Annualised Prof at Expiry: 97%

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:

None

Rolled:

https://www.tycoonitos.com/community/market-comments/market-comments-20220729

Let me know your thoughts.