Hey There Income Hunter,
As expected, this week turned out to be a wild one.
It started with bond supply that was not easily digested …
Then was slapped around by the upside surprise in CPI …
And ended with Fed-ex earnings warning from FedEx.
The weak economy/high Inflation scenario continues to dominate the market sentiment and until the Fed is forced to soften its tone, the market will trend lower.
We did get the first warning of the damage being done to the economy by the tight financial conditions and the high inflation
Notice the fine print calling for central banks to lay off the tightening gas pedal. That is the first indication of a need to pause.
Today, we’ll look at the technical positioning as we head into next week’s meeting and what we can expect from J-Pow …
Options Expiration (OPEX) Playing Out As Expected
Market research firm Bear Traps posted an article about the pattern for monthly option expiry yesterday. The report showed a 2022 average weekly return heading into expiration Friday of -1.81%. See below:
Now, these results make sense because of the bear market.
To understand the logic, think about it this way …
Put buying has dominated customer trading this year, so naturally dealers sell the puts to customers and delta hedge their positions by selling stock …
The paired short put/short stock is a short gamma trade. That means dealers must rebalance the pair by selling as the market goes down and buying when it goes up.
In a bear market, the down trade accelerates, hence the market trades down into OPEX.
Now let’s look at the week following OPEX …
OPEX Wipes the Slate Clean
All open option positions expire at OPEX, so the majority of dealers that are short stock against their short puts buy back the stock …
So, OPEX resets the delta hedged positions and traders start clean heading into the next monthly OPEX.
Check out the results for the week after OPEX …
In a bearish market you can see that option expiry provides opportunity.
Bring It Home
I closed a few bearish positions I have been holding to take advantage of the down week into OPEX for decent gains …
There are so many great trading strategies to deploy in this environment.
Many newer traders get stuck on the Fed having their back and continuing to want to trade from the long side …
But with a good understanding of options you can kill it in all environments.
We combine the skills of a Washington insider, a global bond traders and one of the best options traders of the past 30 years.
We capitalize on the policy decisions made by Congress and the Fed and turn them into the lowest risk/highest reward strategies in the market.
In the past couple of months we closed wins of 643%, 400% and 390% …
And we have a portfolio of trades set up to take advantage of massive trends we see in the weeks and months ahead.
If you want to not only make a ton of money off our ideas but also learn how to gain a massive edge for yourself, join the Capital Gains “personal hedge fund” now.
Have a great weekend and as always …
Live and Trade With Passion My Friend,
Griff