Trade The Journey

Trade The Journey

Reflections V

Top of the Morning.

A new day means new opportunities. Once again, the mask mandates are returning as the number of Covid cases is beginning to rise again. Will this pandemic ever end? I must say it’s interesting hearing ideological differences on mask mandates from Democratic and Republican viewpoints. “Freedom” is the word often heard from those against governments imposing on their free will to wear a mask.

“Consideration” is the word often heard in favor of governments issuing new guidelines for mask mandates like wearing masks indoors again. Taken a step further, you can see a wider divide between receiving vaccinations. Initially, I thought more of the US population received the vaccination than 48.2%.

The vaccination rate is slowing, which means that Covid could begin making its reappearance. Weary of the social distancing, mask mandates, and solitary settings that once caused the economy to halt, people are agitated that these restraints could continue.

If you choose to remain unvaccinated, then the consequences are yours to bear. Why should we continue to wear masks and social distance if we received our vaccination?

I don’t trust the vaccine because they issued it to the population so quickly. How do I know this isn’t some social experiment?

I’m not wearing a mask, and I’m not getting the vaccine. The Covid numbers they state on the news are doctored. Yes, the virus is real, but they’re trying to scare you; look at the actual number of people that die compared to the population.

These are sentiments echoed not just here in the United States but around the world. The Filipino president threatened to jail those refusing to accept vaccination.

My immediate thought is that this pandemic is here to stay because of the mutating strains.

I highly doubt there will be another lockdown in the United States. The rest of the world has continued to impose minor lockdowns to control the new “Delta” variant.

In the future, Covid will continue to affect supply chains and demand from around the world. Inflation is also another worry for countries worldwide, leading some to protest the rising costs of necessities. The Federal Reserve has maintained its stance that inflation worries are transient.

The markets dropped, as market participants rushed into Bonds lowering the yields.  Recently, Banks flushed with cash have placed their excess cash in the Federal Reserve’s repo market.

Cryptocurrency has fallen out of mainstream view once again. Even I ask myself consistently, is Crypto dead?

Far from it, looking for a higher return, Seniors are looking into cryptocurrency. China is also nearing its Central Bank Digital Coin release as it rushes to remove Bitcoin mining from its country.

Watching the greeks:

A month ago, I brought an out-of-the-money call option. The call option was purchased with a thirty-day timeframe, meaning I had thirty days to exercise my right to one hundred shares at the exercise price.

One aspect about options I love is that, in most cases, your risks are known at the outset. If you trade stocks, risk management is more subjected to your trading plan and the discipline to implement it.

The trade:
Call Option Price: $0.20
Strike Price: $13
Stock Price: $7.90
Time Frame: 30 days
Breakeven: $13.20
Total Costs: $20 ( $0.20 x 100 shares)
Total Risks: $20
Total Profit: Unlimited
In the Money Probability: 7%
Out of the Money Probability: 93%

It was a short squeeze candidate, and it had the potential of moving up quickly. It was a $20 gamble that could have paid handsomely if the stock made a dramatic move up.

The stock showed a solid gap up but failed to continue upwards and instead drifted sideways. It then formed a descending triangle and it was over from there as it broke through the support line. The call expired worthless, and I lost most of the call option value in the third week. Each day of the trade, I tracked several data points:

Stock Implied Volatility
Call Implied Volatility
Delta: Direction, probability of the option expiring in the money, number of shares the option is trading.
Gamma: Rate of Change of the Delta, the speed.
Theta: Time Value or the Value of Time effect on the Option Price
Vega: Implied Volatility effect on the Option Price

The stock moved very little throughout the contract’s life. The only variable that changed was the Call’s Implied Volatility which drifted higher nearing the options expiration date. I kept wondering why the option was showing profit as the price lowered.

The greeks were about the same, but the implied Volatility was increasing. Implied Volatility is uncertainty, and the possibility of a sizeable dramatic movement increased the option’s value.

A part of me was hoping that I could find a GameStop type of trade, where out-of-the-money call options could have made you rich a couple of months prior. I also wanted to see how the option greeks moved in real-time.

Option Greeks at their highest during the options life:
Delta: 7.33
Gamma: 5.25
Theta: -1.94
Vega: 0.15

As you can see, the option had a low probability of expiring in the money. With a move in the underlying, you can see how the delta would be affected.

$1 price move up.
7.33 + 5.25
New Delta: 12.58

Of course, the option price wouldn’t have moved much, being that the option would still be out-of-the-money. This weekend, I plan to enter all of the greeks into a spreadsheet and chart how the greeks moved as the price changed.

Reading about options and the greeks provided me with a theoretical understanding; however, understanding doesn’t always translate to profits. The sector the stock was within didn’t move much either.

I’ll trade another option this week a little closer to at-the-money as I regain more capital to trade with. I plan to move into credit spreads in the coming weeks.

Cash-Flow this past week:

I’m doing quite well managing my cash flow. I had a difficult time restraining myself from making small purchases during the week. Managing money is akin to being on a diet.

You have to make consistent choices that benefit weight loss to see the goal accomplished. Instead of grabbing a pack of gummy bears for a snack, I had to work on grabbing a fruit or vegetable first.

“If there is no enemy within, the enemy without can do us no harm.”

A budget is a constant tug-of-war between wants and needs. Unless you align yourself with your goal or budget and make it the overarching determining factor in your behavior, you probably have difficulty succeeding.

Grade: C
Reason: Continued Improvement

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