July 5th, 2023
How We’re Using Bullish Momentum To Our Advantage
The first half of 2023 has been much kinder to investors than the first half of 2022. All three major indices entered a bull market, led by the Nasdaq Composite. In fact, the tech-heavy index put in its best performance for the first half of a year since 1983, rising 32% versus 16% for the S&P 500 and just 4% for the blue-chip Dow Jones Industrial Average.
The hype surrounding generative artificial intelligence has been largely responsible for the Nasdaq’s outperformance. Between this, the pause in interest rate hikes last month and a recession that has yet to materialize, investors have been willing to take on more risk and are once again loading up on growth stocks rather than value stocks.
We’ve taken advantage of the bullish momentum in growth stocks in Options Income Weekly. Members closed out 12 winning trades in June, generating $683 in cash with just one contract sold.
As you can see, we averaged a 0.7% return per trade with an average holding time of less than one week.
Stocks like Amazon (AMZN), Roku (ROKU), The Trade Desk (TTD), DoorDash (DASH) and Advanced Micro Devices (AMD) definitely fall into the growth stock category, with expected earnings growth for the next five years averaging in the double-digit percentages.
We will continue to look for opportunities to trade names like this in the tech sector, as well as consumer discretionary and other areas where money is flowing.
It will be interesting to see whether the bullish momentum of the first half of the year can be sustained, especially if the Federal Reserve raises interest rates two more times this year, as it has said it will do. Many aren’t convinced central bankers will follow through on this promise. Yet, Bank of America CEO Brian Moynihan recently said the Fed won’t reach its 2% inflation target until 2025.
We’ll get a peek behind the curtain when the Fed releases the minutes from the latest Federal Open Market Committee (FOMC) meeting Wednesday afternoon.
Luckily for us, as option sellers we don’t need an overtly bullish market to make money. We can generate income in a sideways market and even in down markets, while being mindful of the additional risk a downtrending market creates. But a bullish tailwind at our backs is never a bad thing!
One of the things we’ll be looking to cover with Options Income Weekly members this month is strategies for defending and adjusting trades. Because, while we closed 12 winners in a row last month, eventually we will have a position go against us.
We’ll also continue using probability-based strategies and tools, including option Greeks like delta, to improve our chances of success. As you can see from our June results, it’s been working out very well.
Any trade or trade idea discussed is for educational purposes only. They will not be tracked as an official trade recommendation.7
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