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!
The Newbie’s Guide To Options Trading

The LEAPS Strategy has helped me make more than USD120,000 in 2021. Here’s all you need to know about this strategy that can help you increase your wealth exponentially:
The Ultimate LEAPS Options Thread

Looking for ideas on what stocks to invest in or which stocks to trade? You can take reference from what I have been buying or selling. I try to update them as soon as I can in this section, as well as share my thoughts behind executing these trades:
MY TRADES

Excited to start your trading journey or perhaps try out with a paper trading account to build your confidence in trading? Check out this step-by-step to help you get started:
How To Buy Options on Interactive Brokers (Step-By-Step)

If the bear market in 2022 is making feel depressed as your stocks come tumbling down, read this article to find out how you can use options trading to help you claw back some of your losses as you await market recovery:
How I Do Earn Even When The Stock Market Is Bearish?

I watched tons of videos on YouTube since 2020 and if you are wondering if there are any useful channels that you can subscribe to for learning market trends, TA, FA, check out this compilation here:
My Secret Weapons For Options Trading: I Watch These YouTube Financial Channels Every Day

I concluded my first year of options trading with more than USD160k of gain, see how I do it and the capital I use for every month to give you a sensing of the percentage yield I get out of my gains:
1st Year Options Trading Recap: The Journey Towards SGD$217,509 Profits In 2021

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.
I Cut $135,715 Worth Of Losses In The Last 1.5 Months

Want to learn more about Technical Analysis (TA) but find it difficult to grasp the concepts? This article brings you TA at a glance, and helps you understand key terminologies, indicators, and techniques used in TA to equip you with the knowledge that can empower you in your investing/ trading journey.
The Newbie Guide To Technical Analysis (TA)

Follow me on your favorite social media platforms, FacebookLinkedIn, or Twitter, to get notified of my latest blog posts. Or join our investing/ trading community at Telegram to exchange ideas or ask questions relating to investing/ trading.

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

  1. Congrats on the good options trade for the last few scary days! Huat to u!

    Do you still remember the TSLA 740 PUT options trade that i shared with you that was so near the strike when the stock price was falling?

    Crap! I bought to close when the stock price rebounce to 800+- but on hindsight i should have hold a bit longer to get even max profit today.

    Sigh.

    Now the stock price is so high and if i buy to close today…i would have be able to have almost 100% of my premium i collected.

    I really hope that on Friday, which is the quadruple witching days, the stock price drop for me to take advantage of the jump in premium before i sell a new PUT contract to collect high premium.

    What do you think? 🙂

    Like

    1. Hey R, oh I remembered that and I was feeling worried for you as the share price of Tesla was inching towards the strike price.

      Too bad we can’t predict the market else we will be billionaire by now…lol.

      Actually what I would usually do is to sell another put contract after I close that one and readjust the SP or expiration date.

      Using your case as an example, I will sell another 740 put but at a later expiration date if I am bullish about the stock. Or if I am bearish, I would probably be selling at SP 700. In both scenarios, if Tesla rallies, it will be good for you and you don’t miss out on the gains. If Tesla drops, you still have time or the buffer of a lower SP to wait it out.

      I hope this makes sense to you.

      Like

      1. Thank you for your kind sharing and thoughts!

        Ok I’m learning and practicing to get tougher now….

        I didn’t dare to roll to sell a new PUT contract.

        But today I’m hoping that there is a bit of retracement during today’s witching hours for me to go back in to sell a new PUT.

        But I’m wondering between today to sell or wait till next week Monday to attempt that.

        May be observing. 🙏

        Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s