Read This Before This Week’s Fed Meeting

Last Week's Income Report: June 13th, 2022

The S&P 500 has again entered bear-market territory, as the sharp selling that began Friday after new inflation numbers were released continued today. 

The major indices saw their recent gains wiped out on news that the consumer price index (CPI) rose more than expected in May, up 8.6% from a year ago in the fastest rise since 1981. This has caused concern that the Federal Reserve may take a more aggressive approach to hiking interest rates at its meeting this week. 

We closed two more winners in Options Income Blueprint last week, earning $52 in cash.

While the cash per contract may not seem like much, there are two things to keep in mind.

First, our annualized rate of return for both trades was well above our goal of 26% a year. Second, as Friday’s market rout reminded us, this is the kind of market where being greedy can really hurt you. 

In addition to closing early, we have been adapting to this volatile market in the following ways:

  • Trading some names over and over like ZIM, semiconductor stocks and the airlines
  • Plus, trading new names like SONO and Starbucks (SBUX)
  • Selling puts that are further out of the money to give us more flexibility in managing positions
  • Being willing to accept smaller-than-usual profits

But as you can see in the table above, “smaller-than-usual profits”’ doesn’t necessarily mean smaller-than-usual returns on our capital. 

If you sell options, I urge you to consider a similar approach given the wild swings in the market. In particular, traders should be extra careful ahead of this week’s Fed meeting, as the central bank’s comments have taken on outsized importance of late.

In the latest Options Income Weekly, I discuss last week’s trades, creating a bullpen and how to trade a potential recession on the horizon.

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