Trade The Journey

Trade The Journey

Some Frustrations…

Top of the Morning! I hope all is well. Slowly vaccination rates are increasing, totaling 54.8% of the population. Unfortunately, some of the southern states are facing another crisis of hospitalizations. In Alabama, for example, ICU units have no more beds available.

Lousiana, Texas, Georgia, and Florida are some of the other states seeing rapidly rising Covid cases. The good news is that people are beginning to shift their perspectives on vaccinations.

I can agree that the government has conveyed mixed messages on the vaccination and its protections. Now, the population is being urged to receive a booster shot eight months after receiving their second shot.

The coronavirus has wreaked havoc on countries around the world and their economies. Some countries have taken extreme measures like shutting down if a single case emerges to prevent virus outbreaks. China, for instance, shut down one of its busiest ports due to a single Covid case.

Here in the U.S., I doubt we will see another shutdown. Instead, the U.S. has begun to issue mandates on vaccination for employment, events, and schools or opt to be tested weekly. The U.S. is trying its best to fully vaccinate its population with vaccine requirements so that it can avoid another shutdown.

Virus mutations will continue to remain a worrying trend for countries hoping to return to some normalcy.

In the future, the government will write a bill limiting businesses’ liability due to Covid infections received which working at the workplace. For now, Covid has made it clear that it is here to stay.

The job reports show an improving environment for gaining employment. Everywhere I drive, I see “Now Hiring” signs with a list of benefits. Some companies are offering 401k plans, college assistance, and opportunities for rapid advancement to entice people to apply.

Jack-in-a-box had a sign that urged people to acquire about employment within and possibly be hired on the spot. Companies are having are a hard time filling vacant positions, especially in the retail sector. As companies begin to resume office activities, employees are hesitant about returning to the office space.

The company I am currently employed with was near empty on a Friday afternoon. The lights were off, and the Air conditioner was off, saving the company money.

If productivity continues as it does when people are in the office, why insist on having people come to the office?

Sentiment among consumers trended down, as did retail sales. Most of the retail sales involved the slowing of auto sales due to the chip shortage. Shipping ports faced congestion issues, continuing the supply chain issues companies are facing.

The Federal Reserve has continued to look into tapering its asset purchases. Some have said the tapering might begin soon, maybe starting in late 2021.

If they do, rates will undoubtedly increase. Easy money and low rates have made borrowing money more accessible for all companies. It also has made it hard for managers to find reasonable rates for their needed safe investments. The Fed repo market has continued to see record-setting action.

Tesla recently spoke about its Tesla bot, a robot designed to perform mundane activities in the workplace. This bot is just the beginning of replacing a portion of the workplace, eventually rendering them structurally unemployable.

With the digitization of money, the oncoming digitalization of the economy seems all but evident.


Frustration:

I’d say that this Pandemic is a black swan event that very few foresaw. It ushered in profound changes in the world while infecting an untold amount of people around the world. I’m one of the many who has lost family members to this virus.

I tried my best to invest the time available due to the Pandemic. I spent the majority of the time reading about the markets and options.

Advanced options strategies by Sheldon Natenberg is a book I highly recommend reading. This book will introduce you to the complexities of options and the inherent creativity within these assets.

When I finished this book, I thought about the disadvantages I faced as a beginning trader. With very little knowledge of the greeks and the option pricing model, the probability of placing a winning trade was slim.

I didn’t know about At-the-money options and their importance in the option chain or how they set the tone for option volatility. Nor did I understand how the gamma for in-the-money and out-of-the-money options slows as you near the expiration date.

It all made sense when I understood that the greeks are mathematical versions of risk forecasting. I would akin the greeks to quantifying the risks in an asset in the same way a stock picker analyzes a stock.

The greeks are what make options the best vehicle for trading with the best chances of earning a profit. You can capitalize on the market environment without having access to a large amount of capital.

One stock I have been watching is GEO.

Since I’m trading this stock, I have very little fundamental knowledge of the company. I like to keep it this way to avoid compromising my objectivity when analyzing the technical action.

Recently, I tweeted that GEO showed a descending triangle pattern and the downward movement in GEO was coming. That turned out to be incorrect as GEO made new highs during the week. Someone commented on the tweet that GEO was showing more of a symmetrical pattern, and he was right.

I decided to place a bear call spread which means I’d sell the lower option at the money and buy an option at a higher exercise price. I was placing a bet that the recent high-flying action in GEO would slow and fall from its highs on a pullback.

The options expiration date would be a month from now. I learned early on that weekly options are difficult to profit from because of market timing and direction preciseness.

The position’s delta was a -43, the gamma was around 12, the theta was small, and so was the vega. The position was a 2:1 on the reward to risk side. The implied volatility was in the 20% range, and the IV percentile wasn’t too high. IV percentile gives you an idea of how the implied volatility currently compares to past implied volatility.

I always find the best trades when I’m not actively seeking a trade for some reason. A 2:1 reward to risk is a great trade to place. With a delta near -50, you could say there was a fifty percent chance of earning a profit.

Unfortunately, I didn’t have the capital to place the trade. I didn’t want to cash out of any of my investment positions, which meant I had to remain on the sidelines.

If you like to trade, that means you like the market’s action, the excitement of risk.

It hurt that I didn’t have the money to place the trade, so I’ll have to keep paper trading and learning in the meantime.

If you are comfortable with the defined risks, as the vertical trade I listed above, then options are worth learning. The deeper your understanding of options, the more intuitive trading them becomes.


Past week Cash-flow:

With last week’s trip, I face a manageable cash-flow crunch. I slowed my recurring investments in crypto which has helped me weather the storm. I’m fortunate to have a small nest egg from which I can withdraw.

Although I hate taking money from my future self, my present self needs the money to survive. The coming weeks will help me rebuild my savings account.

Reason: Consistency

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