I Did Not Predict The Rally, I Simply Prepared For It | What I Am Doing Next

The US market rallied for the second straight day after the FOMC meeting as the Federal Reserves announced they would be increasing interest rate by 25 basis points (0.25%), which is aligned with market expectation. The reduction in the balance sheet where the Fed starts selling bonds will only confirm in future meetings. Jerome Powell also played down the fears of an upcoming recession.

Elsewhere, China has vowed to support its financial markets, giving a reprieve to beaten-down technology shares. There is speculation that Russia and Ukraine had moved closer to a compromise in peace talks, which further boosted the financial market, which is worried about inflation due to the impact of the war and sanctions.

As shared in my previous post, I started preparing for a market rally when the market was down last week by closing my covered call positions. I could have hung onto them for a longer time for a higher profit while the market was down (falling share prices favors covered call sellers) but I closed them early to prevent myself from getting caught off guard when the rebound happened.

What I have done and Intend to do Next

Strategy 1) Rolling PUT Contract
On 16th March 22, as Tesla’s share price was rising, I rolled the PUT contract to a higher strike price and a longer expiration date closed the old contract for USD730 profits (in 5 days) and collected a premium of USD2,000 for the new contract.

The details are as follow:

Opening the PUT Contract:

Contract Type: Sell Cash Secured PUT
Date of Contract (Open): 11th March 22
Strike Price: USD700
Expiration Date: 14 April 22 (34 days contract)
Premium Received: USD2250
Returns: 3.21% (2250/ 70000)

Closing the PUT Contract

Contract Type: Sell Cash Secured PUT
Date of Contract (Close): 16th March 22
Strike Price: USD700
Expiration Date: 14 April 22 (34 days contract)
Premium Paid: USD1520
Profits: USD730 (2250 – 1520)
Returns: 1.04% (730/ 70000)
Duration of Contract: 5 days

Opening a 2nd PUT Contract:

Contract Type: Sell Cash Secured PUT
Date of Contract (Open): 16th March 22
Strike Price: USD710
Expiration Date: 22 April 22 (37 days contract)
Premium Received: USD2000
Returns: 2.82% (2000/ 71000)

Strategy 2) Selling Covered Call
I will be selling covered call contracts on my existing shares again when I notice that the uptrend is slowing down or when the share price has risen to the point whereby the strike price of the covered call contract is close to my average (breakeven) price and the contract brings a decent return.

Strategy 3) Buying 3 more Alphabet Shares Progressively
As shared in my previous post, I intend to accumulate 5 shares of Alphabet so that I can sell covered call contracts on Alphabet stock when it splits 20-for-1 in July. I have already bought 2 shares of Alphabet at USD2,688 and USDD2567, thus I have 3 more shares to buy from now till July and will be on the lookout for a bargain price to buy if there is another dip or when I find the price attractive.

Strategy 4) Selling away LEAPS CALL contracts, starting from the ones expiring earliest
The LEAPS strategy that worked so well last year became a ticking bomb for me this year as the time value of the contract is decreasing by the day. There is also an opportunity cost as the money that was used to buy these LEAPS contracts is stuck and not being able to be used for other investments.

I will be selling off those LEAPS contracts that are expiring earliest, i.e. those expiring on Sept 22 or Jan 23, if they turn profitable or when I feel it is time to cut loss before they all expire worthless. The main trading strategy for this year will still be to focus on doing the Wheel strategy and earn regular sideline income.

Concluding Thoughts

One lesson that I learned in my trading journey is to be prepared when the market swings in the other direction. When the market is falling, be prepared for the market rebounding and rallying so that my trade positions are not caught in disadvantaged situations. When the market is rallying, don’t FOMO in as it could fall the following week or days.

I share my trading strategies for different market conditions here:
How Not To Lose Money In Trading? | My Trading Strategies For Bullish, Bearish And Volatile Market

Wish you guys all the best in your investing and trading journey!

***
Keen to learn about options trading but do not wish to pay for expensive courses, this newbie guide will help gain the knowledge and fundamentals to understand options better. And it’s totally free!
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This blog is as authentic and as transparent as I can share, I do not just show the wins and hide the loss. I have made some very bad decisions in the first 8 years of investing and paid a huge price for them. Here is the loss I have accumulated during these years. I hope you learn some lessons from my mistakes.
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