The US stock market continues to free fall after a brief rebound on 4th May 2022, where the Federal Reserves announced an increase in interest rate of 50 basis points. Coupled with CPI data that fell below expectation, the stock market has continued its free-falling.
The S&P 500, a stock market index tracking the performance of 500 large companies listed on stock exchanges in the United States, has fallen more than 12% in the past month. The tech-heavy Nasdaq has fallen more than 20% in the past month.
The only silver lining in this huge market correction is that the premium for covered call contracts fell fast together with a huge share price drop so I can close them early to lock in the profits, rather than wait for them to expire. I have explained the bear market options trading strategy in this post:
How Not To Lose Money In Trading? | My Trading Strategies For Bullish, Bearish And Volatile Market
I closed my covered call contracts (all are a few days old except for Pinterest) by buying back the covered call contracts that I sold just a few days ago. The total profits gained in closing these contracts is USD2,666.
I use a method that helps to minimise my risk even if the market U-turn and rises rapidly. This method will also help me generate higher returns as the delta is higher for these contracts. The exact strategy is explained in this post:
I Discovered A Way To Generate Higher Returns From Selling Covered CALL
I opened up new Covered CALL positions when the market was showing signs of a rebound. It was a good opportunity to collect more premium when share prices rise. As covered call option contract sellers, we want to sell covered call option contracts when the share price is higher to earn more premium and cash in when the share price drops, as it translate to a drop in premium, for us to buy back a lower price.
Lastly, I get this comment/ question all the time, that is, what is the point of these gains from rolling covered call contracts when my stock value is dropping with the huge price drop. I have explained the rationale in this post:
Q&A: Your Covered CALL Contracts Are Generating Good Returns But Your Shares Are Losing Money!
Concluding Thoughts
I believe there may be more pain coming up in the market, especially when the Ukraine-Russia war is showing no signs of slowing down, so is inflation as well, which is not coming down as fast as we want them to be. Also with Federal Reserves starting to tighten on the bond purchases, there will be less liquidity in the market to support the share prices.
Therefore, my strategy is to keep earning premiums off selling covered call options contracts and build up my cash reserves, while waiting for a recovery in the 2nd half of the year or next year. I am also done with averaging down on my LEAPS positions and thus, will not be buying any more CALL contracts for the time being.
I hope everyone is staying sane during these crazy times. If we can survive the pandemic for the past 2 years, we can definitely survive a stock market crash. Do remember that there are many things that money can’t buy, so take a break from the stock market if you need to and spend more time improving your health and bonding with your loved ones. I wish you all the best!
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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 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:
How I Do Earn Even When The Stock Market Is Bearish?
Also, check out my trading strategies in different market conditions, whether it is bullish, bearish or volatile:
How Not To Lose Money In Trading? | My Trading Strategies For Bullish, Bearish And Volatile Market
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)
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)
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Learning Investment With Jason Cai 