November 9th, 2022

I Didn’t Win The Powerball Jackpot

What I did find fascinating about yesterday’s trading was that as news broke about the winning ticket being sold in California, the market coincidentally sold off. No, the market didn’t fall off a cliff because of that, but the 5-min SPY chart does graphically represent the hopes and dreams of millions of ticket holders.  

I mentioned yesterday that the yuan was helping U.S. stocks, but one day later there was a report that said China will maintain or even expand its pandemic lockdowns and restrictions after it reported 7,323 new covid infections. That’s the highest jump in 6 months, so the yuan fell and the dollar started climbing up from its low of the day.

I think yesterday’s move was more tied to the uncertainty of the U.S. elections than anything, but unless something wonky happens with the elections, investors will quickly turn to the upcoming CPI number and any implications it has for a change in the Fed policy.

Ok, since I didn’t win the jackpot, I better get back to providing trade ideas.

The Dow (DIA) broke above its swing high.

The S&P 500 (SPY) just broke above its 50-day moving average and stayed there two days in a row and is looking to test its last swing high.

And the Nasdaq (QQQ) is the laggard of the group, but if we see some of the historical bullish factors come into play – like the 12 months after a midterm election and the next six weeks being seasonally strong, then we should see the QQQ head up from here.

So I’m looking at non-other than Microsoft (MSFT). Over the next 11 weeks, the stock has on average historically risen by 8.6% and has been positive in 25 of the last 33 years, giving it an accuracy of 75.76%. Here’s MSFT’s daily chart.

For this particular trade, I want to test a version of a tactic widely used. I’m looking at a long-dated put credit spread and want to find a spread that has at least 200 contracts of open interest, receives a premium of at least 10% of the width of the strikes, and sell a put that is at a 20-delta or below.
Let’s see what we can find…. (scanning)…

Looking at the 17 FEB 23 expiration, the $195 put has a delta of .1777 and 1,635 contracts in open interest. I can buy the $190 put and collect $0.85 for the spread. Since 0.85 is > 0.50 (10% * 5-wide spread), this fits the criteria I’m testing. This trade has a max risk of $415 and a max reward of $85 per spread. I’ll be looking to exit somewhere between 25% – 50% of the max profit or if the trade goes against me when the cost to close the trade is $1.85.

More prudent investors will wait until MSFT closes above its 50-day moving average, but I’m going to test it while being a little more aggressive.

Now, before I go today, I have some exciting news to share! I’ve been invited to speak at an upcoming conference and I’d like to invite all of you to attend virtually! Did I mention, it’s free to attend?

This Monday, November 14th at 12 pm noon ET, I’ll be presenting my 4-Day Trade strategy at the Synergy Trading “Friendsgiving” Event. I’ll be kicking off the four-day event consisting of 40 LIVE sessions covering some of the best advice on trading and investing from the world’s top experts. Can’t make it live? Be sure to register so you receive all the recordings.

Reserve your spot here!

Even if you know all about the 4-Day trade, I’d still love to see us flood the event with Traders Reserve supporters. Come hang out with me and other traders!

If you have any questions, comments, or anything we can help with, reach us at any time.
Email: [email protected]
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Jeff Wood

Editor, Filthy Rich Dirt Poor

Trader, Options Testing Lab