What a huge rally today!
I was not expecting this.
What caused it?
The Fed announced a slower pace in their interest rate hikes.
In my opinion the market significantly overreacted. A smaller interest rate hike is still a hike, which increases the pressure on most individual's and businesses' budgets. It will make more people lose their jobs and more people defaulting on their loan payments so I do not get how the market spiked up 3.3% on a single day.
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?
#KMX (#CarMax). Normally I like to sell put options when a stock drops at least 3% but in this instance KMX followed the market trend and rallied today. Given that most stocks rallied and the volatilities across the board are very low I did not see many opportunities apart from KMX. I opted in for a short option hoping to avoid the earnings, which will take place shortly after the Dec expiration. Also, the strike price I selected is fairly solid so even if the price drops after today's rally, I still believe that this trade will be fine. If the price goes further up then I might sell a call option too.
Trade Type: Short Put
Expiry: 16 Dec
IV Rank: 57.3
Cap Req: $709
Annualised Prof at Expiry: 161%
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.
Let me know what you think.
I could have closed this 1 day prior to expiration for a profit but I wanted to let it run out.
The price collapsed on the day this option expired and I ended up closing it for $0.52 loss, which equates to 167% annualised.