It was a very red day in the stock market on 26th April 22 as almost all the companies in S&P 500 closed lower. U.S. stocks fell sharply on Tuesday with shares selling off into the close, as investors dumped equities on fears of an economic slowdown.
The tech-heavy Nasdaq Composite dropped 3.95% and hit a fresh 52-week low to close at 12,490.74. The index retreated further into the bear market territory, sitting now about 23% off its high. The Dow Jones Industrial Average shed 809.28 points, or 2.4%, to 33,240.18. The S&P 500 lost 2.8% at 4,175.20.
On extremely red days where share price plunges, it is advantageous for my covered call positions as the premium will also drop significantly and I can lock in the profits in the shortest time. The below table is a summary of the trades for 26 April 22.
On 18 April 22, I sold a Covered CALL contract on Tesla with 5 months to expiration at received a premium of $5,840. That is an average of less than 1% returns per month for the next 5 months if the share price remains stagnant at my bought price of USD988. The reason for selling a long-dated CALL Contract is to achieve a higher delta at my preferred strike price. If the share price falls, the higher delta will mean that the premium drops faster than an option contract with a lower delta.
I explain this new strategy further in this article:
I Discovered A Way To Generate Higher Returns From Selling Covered CALL For Low IV Stocks Like Apple
So, on 26 April 22, the share price of Tesla dropped by almost USD100 and the premium dropped from USD5,840 to USD4,080. I closed the contract for USD1,760 profit, which is a 1.47% return in 8 days (vs. 0.974% monthly return).
The same goes for Nvidia. I sold two Covered CALL contracts on 18th April 22 and received a premium of USD1,960 for 2 contracts, which is around 3.66% return for a period of 5 months. That works out to a 0,732% average monthly yield.
However, on 26 April 22, the share price of Nvidia dropped from USD215.4 to USD 190.90, the premium also dropped from USD1,960 to USD1,160. I closed the contract and achieved a return of 1.50% in 8 days.
I did not open new contracts as I was betting on the stock market rebounding the following day, which happens sometimes when the market is extremely red on a particular day. Regardless of the outcome, I will open new contracts for Tesla on 27th April 22. Ideally, I prefer it to be a green day because I earn more premium off my preferred strike price. However, we cannot predict the market and this strategy favors a bearish outcome.
For friends who are feeling depressed because the market keeps going down, you may wish to try this strategy that can give you a decent return every month and build your cash reserves for future dip-buying.
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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:
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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 on executing these trades:
MY TRADES
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:
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Also, check out my trading strategies in different market conditions, whether it is bullish, bearish or volatile:
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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:
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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)
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How To Buy Options on Interactive Brokers (Step-By-Step)
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