12/21 Daily Market Note: Santa has Arrived.
Santa Rally In Motion - Informal Note before holidays.
Hi Folks,
In the background as markets grind higher, I am brainstorming ideas on how to make our Community even better and will spend the holiday thinking about new formats in which I can serve the folks best as possible in 2024.
Make sure to share my work with others so that we can help each other succeed.
Onto markets.
For investing positions (meant for long-term), we remain firmly in a Holding environment where the fewer the transactions placed, the more likely we capture the best possible outcomes from the market’s slow grind higher. In a slow grind melt-up phase, don’t touch investing positions is my mantra. During a trending phase, don’t overreact on down days, yet don’t necessarily buy more on up days. Just HOLD.
The market has a tendency to inflict the most pain at the pivotal junctures when things become too one sided - case in point, there was extremely heavy Call Option (bullish wagers) volume at SPY’s 476 level leading up to yesterday where the index hit a hiccup. And on the other hand, I believe a lot of retail investors chased short-term Put Options on yesterday’s scary waterfall close.
The result? Both sides see their option contracts evaporate in value due to the short-term nature of their expiration.
Long time members know that when it comes to going long options, I definitely prefer longer-dated (at least 2 months) expirations. Yes, the premiums are a little higher but they have time to recover from past drawdowns.
I also want to take a moment to celebrate with our members the fact that Puts on Alibaba have declined significantly in value. We’re on the other side of the trade as Sellers of Puts.
Folks know that when I first like an idea - I sell puts on it. When I have profits from selling the puts, I buy it directly as I now have embedded profits. And if I really like the trend, then I’ll re-risk profits and buy Calls on it.
My favorite strategy is definitely selling puts, but given that I recognize selling puts has capital constraints, I am actively, actively working to fine-tune my strategy opinions to include buying Calls as that is capital friendly for all.
Positioning Guidance:
I re-risked partial profits from Selling Puts into the following: