Rolling Trades: Removing The Negative Connotation

Rolling option trades has a negative perception in the options world. The act of rolling an options trade does not deserve the negative connotation it has garnered over the years. Rolling can serve as a valuable tool in a comprehensive options strategy. Inevitably, when trading options, an option’s strike will be challenged, and when this occurs, one may need to act to circumvent a potential loss. These potential losing trades can be managed effectively to avoid losses altogether via rolling. Given the right set of circumstances, trades can be rolled by closing out the pending trade for a debit and subsequently opening a new trade with a later date and further out-of-the-money strikes for an overall credit.

Options provide a statistical edge to the option seller’s advantage. When the option strike is challenged, this statistical edge is negated and must be reset by rolling a trade to reestablish this edge and subsequent advantage. Rolling out to a later date and further out-of-the-money strikes allows more time for the trade to work through the unexpected price excursion. Options trading enables traders to define risk, leverage a minimal amount of capital, and maximize return on investment. Options trading can create smooth and consistent portfolio appreciation without predicting which way the market will move. Options enable one to generate consistent and durable monthly income in a high probability manner in both bear and bull market scenarios, and rolling is part and parcel to this overall options-based approach. Rolling trades seldomly occurs, and over the past 12 months, only 7 trades were rolled while only 3 of those 7 were required (e.g., the strike remained breached at expiration).

Rolling Trades
Figure 1 – Overall rolled option metrics from May 2020 – April 9th, 2021, including rolled trades available via a Trade notification Service
Continue reading "Rolling Trades: Removing The Negative Connotation"

ARK Space ETF: The Good And The Bad

After making a call a few years ago, Cathie Woods has gone from “crazy lady” that Tesla would be worth more than $3,000 per share to investing superstar after her prediction came true in just a few years. Now she is entering into a whole new, truly unexplored realm with her newest ARK Invest Fund, the ARK Space Exploration & Innovation ETF (ARKX).

The first time I heard of this ETF, I was super interested in the idea that I could invest in the hot space exploration companies in a nicely bundled package without having to cherry-pick the winners and losers of this industry during its infancy. See, with most new or newer industries, a lot of the early companies don’t make it, while just a few of those first companies in the industry are the ones that go on and dominate the industry for years to come. But, how do you know when things are just getting started which company is going to go bust and which is going to be a big winner?

So, industry-specific Exchange Traded Funds help solve this problem because they allow you to invest in all the companies operating in that industry while spreading out the risk. And since space exploration, from a private business side, is still very young, this is the perfect way to play the Space industry. Continue reading "ARK Space ETF: The Good And The Bad"

Gold & Silver: The Dollar Shows The Way

The U.S. dollar index (DXY), aka “King,” has a clear structure in its chart as it moves accurately according to the plan posted at the beginning of the month. Most of you supported the idea that the dollar will show another drop.

King Dollar Weekly Chart

The green leg 2 of the pullback traveled 1.618 of the distance of the first green leg up and touched 93.44 at the top. Then, the price quickly reversed down to drop like a rock. The last week’s bar closed at the minimum as selling pressure persisted. I switched to a weekly time frame to show you how accurately the current second leg down repeats the path of the first leg down.

This time, after the price went deep down, I built the black downtrend channel through the recent peak. We can see the magic of the trend here as the mid-channel accurately intersects the valley of the first leg down at 88.25 to offer double support for the price.

The RSI turned Bearish following the brief roll over the crucial level. It confirms the downward outlook.

This predictability of the dollar dynamics made me reconsider the gold chart below. Continue reading "Gold & Silver: The Dollar Shows The Way"

Are You Ready For Some Inflation?

The latest indicators of inflation are in, and they’re starting to look a little warm – bad news if you’re a bond investor. For March, the consumer and producer price indexes showed prices rising at their highest levels in years and well above the Federal Reserve’s 2% target.

The headline consumer price index jumped 2.6% on a year-on-year basis, the most since August 2018, and 0.6% since February, the biggest one-month jump since 2012. A good part of that rise was due to the steep rise in gasoline prices, so the so-called core CPI, which excludes food and energy prices, showed a more modest 1.6% YOY rise.

The producer price index, however, showed inflation running even hotter. Headline PPI jumped 4.2% YOY in March – its biggest spike in nearly 10 years – and a full 1.0% compared to the prior month. Excluding food and energy, the YOY increase was 3.1%, 0.6% on a monthly basis. Producer price increases often – but not always – turn into higher consumer prices, depending on whether or not manufacturers choose to, or are able to, pass along their higher costs to customers.

Whether these are momentary spikes or not, of course, remains to be seen. For his part, Fed chair Jerome Powell professes not to worry. Continue reading "Are You Ready For Some Inflation?"

Futures Prices Continue To Push Higher

Rough Rice Futures

Rice futures in the July contract is down 10 cents this Friday afternoon in Chicago, currently trading at 13.23, wanting to break out to the upside, in my opinion.

I'm not involved, however, I will be recommending a bullish position if prices close above 13.60 while then placing the stop-loss under the February 16th low of 13.06 as the risk is around $1,200 per contract plus slippage and commission. The grain market across the board remains very strong as we are hitting multi-year highs. I think rice will start to join the party as the volatility will certainly come back, especially as we enter the summer months. Historically speaking, rice can experience tremendous price swings. The risk/reward is in your favor to take a bullish position.

I believe prices are bottoming out around the 13 level, so keep a close eye on this market as we could be home soon. Prices are trading above their 20 and 100-day moving average, telling you that the trend is to the upside. I think the downside is very limited. If you have been following my previous blogs, you understand that all of my trade recommendations are to the upside as quantitative easing should continue to push prices higher.

TREND: MIXED - HIGHER
CHART STRUCTURE: IMPROVING
VOLATILITY: AVWERAGE

Coffee Futures

Coffee futures in the May contract broke a four-day winning streak ending lower by around 155 points at 133.15 a pound as prices hit a four-week high this week as a long-term bottom looks to have been established, in my opinion. I have been recommending a bullish position over the last month from around the 126 level. If you took that trade, continue to place the stop loss at the 106 area as an exit strategy. However, in next week's trade, I will raise the stop-loss; therefore, the monetary risk will be reduced. Continue reading "Futures Prices Continue To Push Higher"