By: Tom Gentile
on March 22nd, 2023
Originally published via our newsletter previously. Subscribe for early access!
As many of you know I am on vacation at my home in New Zealand.
I know the markets are having a bear of a time with the banking crisis and things like KRE are in ‘free fall’. There are banks that have gone under like Silicon Valley Bank and Signature bank and reports are there are 20 to up to 50 other banks at risk of suffering the same fate.
While we watch events play out and wonder if that is going to put a pause on interest rate hikes or at least the next interest rate hike decision due out March 22, In the meantime let me offer you some serene, amazing views from our home to help relax you and let you know that while there is concern for the markets and we will deal with it, we need to take pause and enjoy what aspects of our life we can, when we can.
— Tom Gentile
C1P: Chief 1-Percenter
Corners of the Market
SPY – SPDR S&P 500
TLT – iShares 20+ Year Treasury Bond ETF
Sure enough, TLT made a similar move off the Darknet B, Bullish signal as it had the previous Darknet B, Bullish signal.
The chart has yet to produce a Darknet S, Stop signal so keep an eye out for that possibility.
The box trading range is drawn in to the chart image above to indicate support and resistance prices for TLT.
A couple of choices are available to options trader.
- One can consider trading options bullish and or bearish within the range. Example: Long Call to open off support to close that trade at resistance (and vice versa with Puts)
- Wait for a break out of the box range and anticipate a 9-point move further in the direction of the break once it does.
UUP – Invesco DB US Dollar Index Bullish Fund
USO – United States Oil Fund, LP
A Darknet S, Stop signal did in fact appear on the chart for USO.
The bullish seasonal energy in Energy and Oil is getting off to a rocky start as USO has now broken a support level seen at the 62.50 price.
Being a rules based trader and trading patterns, technical – seasonal – or others, one needs the conviction to maintain a position and see how it plays out versus being shaken out too early.
A starting point for a bullish recovery would be a bounce back up to the broken support price level, maybe testing that as a new resistance.
What would be even better is for USO to not only bounce back to that price but continue to run higher. First things first, though, let’s get that bounce.
GLD – SPDR Gold Shares
When a case study is shown in the newsletter, please understand it is an educational example of how one would spot an opportunity for an option trade, but NOT an actual trade recommendation.
The following is a case study on an option trade on the stock Netflix, Inc. (NASDAQ: NFLX).
It is found first by recognizing a technical pattern or what could be technical reversal items that may lead to a bounce higher in price.
This wasn’t found from any scan.
The temptation to check Darknet, Money Calendar or any other scans is there, but sometimes simple technical analysis may be all that’s needed.
Plain old support and resistance. Basic Fibonacci and a little bit of Japanese Candlestick analysis is all one may need.
Figure 1 shows a 150-day Candlestick chart with Fibonacci retracement placed on it.
NFLX tested the 50% retrace. Along with that the three previous trading days to today forms a similar formation to a Morning Star Reversal.
Today, despite all the market turmoil and sell off due to the concerns about the financial sector, NFLX performed a bullish reversal day and closed near its high of the day.
A security that is bullish in a bearish market could be deemed having positive relative strength.
And if one were to consider an actual option trade they can consider the pivot lower a technical stop point where they would preserve capital with a move below that.
The options are a bit pricey when one considers buying to open just a long call.
We went ahead and looked up a Call Debit Spread opportunity to hedge the risk of just a long call and to reduce the cost of a bullish option trade.
The key to making max profit on a Call Debit Spread the security needs to be trading above the sold strike in the spread at expiration so exercise and assignment happens.
Below is the Call Debit Spread case study (NOT a recommendation).
If one were to buy to open the spread at a cost of $2.50 per contract the prospect of a 100% ROI is there.
It is no guarantee that will happen, but there is a chance.
NFLX needs to be above the sold strike in the spread (305) at expiration.
The markets would likely assign (assignment) the account to deliver the security at $305. The account would have the right to exercise (exercise) the right to get the stock at $300 and then it would deliver as assigned at $305.
If one were to pick up a security at $300 and then deliver/sell at $305 they make $5 or $500 per contract.
If one spent $250 to open the trade and made that $250 back plus another $250 (the $500) that would be a 100% ROI.
— Tom Gentile
C1P: Chief 1-Percenter
Stock and options trading has large potential rewards, but also large potential risk.
You must be aware of the risks and be willing to accept them in order to invest in the stock and options market. Do not trade with money you cannot afford to lose.
This is neither an offer to buy/sell/ or recommend a particular stock or option.
Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been actually executed, the results may have under or overcompensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with hindsight.
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