Selling VXX call - Expiring 27 Jun 2020
Decided to sell covered VXX Calls as i'm pretty unsure about making Industry specific trades as it's very detached from the economy. But what I've learnt so far is that it is not a fact that the market needs to correlate with the economy.
Trading volatility seems like a good idea, as an exercise I have tried to justify two market scenarios.
Market Rises/Range Scenario
- Cities start slowly reopen
- Earnings has companies forecasting the worst of 2020. However investors seem optimistic/lukewarm
- CN could report positive economic news that will encourage positive vibes
- Europe could show positive recovery
- US weekly unemployment numbers are slowing down
- US second stimulus package (May)
- Positive vaccination news
- Lower income consumers are the most impacted. However, that won’t dent investors that deem key stocks as “cheap”
Market Crash
- Europe sinks into a clear recession
- Breakdown of second stimulus package
- CN hits a repeat lockdown or resurgence in virus
- FED keeps pushes dire warnings of economy and this becomes an early warning
- Credit card and mortgage defaults spiral (After Aug)
Trade Risk: $4710
Trade Reward: $1290 (27%)
Win Probability: 73.78%
Trading volatility seems like a good idea, as an exercise I have tried to justify two market scenarios.
Market Rises/Range Scenario
- Cities start slowly reopen
- Earnings has companies forecasting the worst of 2020. However investors seem optimistic/lukewarm
- CN could report positive economic news that will encourage positive vibes
- Europe could show positive recovery
- US weekly unemployment numbers are slowing down
- US second stimulus package (May)
- Positive vaccination news
- Lower income consumers are the most impacted. However, that won’t dent investors that deem key stocks as “cheap”
Market Crash
- Europe sinks into a clear recession
- Breakdown of second stimulus package
- CN hits a repeat lockdown or resurgence in virus
- FED keeps pushes dire warnings of economy and this becomes an early warning
- Credit card and mortgage defaults spiral (After Aug)
Trade Risk: $4710
Trade Reward: $1290 (27%)
Win Probability: 73.78%
Comment:
WSJ - 29 May
Even with anecdotal reports of hiring and signs the economy has bottomed out, more bad data are on the way. Yesterday we found out new orders for durable goods fell more than 17% in April and the U.S. economy’s first-quarter contraction was slightly steeper than initially estimated. Most economists expect an even bigger contraction for gross domestic product in the second quarter (-5%)
Even with anecdotal reports of hiring and signs the economy has bottomed out, more bad data are on the way. Yesterday we found out new orders for durable goods fell more than 17% in April and the U.S. economy’s first-quarter contraction was slightly steeper than initially estimated. Most economists expect an even bigger contraction for gross domestic product in the second quarter (-5%)
Comment:
WSJ - 5 June 2020 (Real Time Economics newsletter)
Cooks, bartenders, waiters and dishwashers. Employment in food services and drinking places rose by 1.4 million, accounting for about half of the gain in total nonfarm employment. Construction, health care and retail also posted big gains.
A broader measure of unemployment—which includes part-time workers and those who gave up looking for jobs—remained elevated at 21.2%. Many workers had their hours cut and are working part time rather than full.
Cooks, bartenders, waiters and dishwashers. Employment in food services and drinking places rose by 1.4 million, accounting for about half of the gain in total nonfarm employment. Construction, health care and retail also posted big gains.
A broader measure of unemployment—which includes part-time workers and those who gave up looking for jobs—remained elevated at 21.2%. Many workers had their hours cut and are working part time rather than full.
Comment:
WSJ - 18 June 2020 (Real Time Economics newsletter)
Permits to build new homes in the U.S. jumped more than 14% in May, mortgage applications to buy a home rose to the highest level in 11 years during the second week of June, and home-builder optimism has rebounded this month. But actual building remained muted, with new construction posting only a modest gain last month. That all suggests a bounce in construction this summer, though the longer-term outlook will depend on the pace of recovery for the labor market and broader economy.
Permits to build new homes in the U.S. jumped more than 14% in May, mortgage applications to buy a home rose to the highest level in 11 years during the second week of June, and home-builder optimism has rebounded this month. But actual building remained muted, with new construction posting only a modest gain last month. That all suggests a bounce in construction this summer, though the longer-term outlook will depend on the pace of recovery for the labor market and broader economy.
Trade closed: target reached:
The short pull contract expired slightly above strike price but because of time decay, the loss was minute. The interesting bit was that I forgot to close it and it got automatically assigned a short position of 1000 VXX units. The initial margin call unnerved me but i realised all I need to do was to close the position within 5 days.
While it was careless, the trade still went well as I was 65% confident about the VXX dropping.I ended up locking more profit and it made me realize that this could be fit into my future trade plans
While it was careless, the trade still went well as I was 65% confident about the VXX dropping.I ended up locking more profit and it made me realize that this could be fit into my future trade plans
In another sign the worst may be past, U.S. applications for mortgages to purchase a home have risen for five weeks straight, according to a Mortgage Bankers Association survey. That's no guarantee the market will continue to gain ground, but it does suggest activity has stabilized.