The information provided in this newsletter is for educational purposes only and should not be construed as financial advice or as a recommendation for any specific security or trading strategy. My assumptions and observations were only valid at the time of trade execution. I share my trades and the rationale behind them for the purpose of teaching technical analysis and option trading techniques. Investing and trading involves risk of loss. Past results are not necessarily indicative of future results. You are responsible for your financial well-being, and I bear no responsibility for any consequences of your actions based on the information I provide. The decision to invest or trade is for the Reader alone. The use of the information in this newsletter is at your own risk. You should never make an investment decision without consulting your financial adviser and conducting your own investment research and due diligence.
I executed the following option trades during the week of Mar 25-28, 2024:
On Mar 25, 2024, I sold to open (STO) 5 SOXL cash-secured puts expiring on 4/19/2024 at a strike of $35 for a premium of $0.61 per share and received $305 for the 5 contracts ($61/contract), minus fees and commissions.
- Fulfilled my preferred criteria for new cash-secured puts of a delta <=0.2 ("20 Delta") and a monthly return of around 2%:Delta (at the time of trade execution): 0.10 ("10 Delta") (~90% chance of expiring worthless)If the puts expire worthless, it would be a 1.7% return on investment in 25 days with a collateral of 17,500 ($3,500 per contract) or a 2.1% monthly return; 25% annualized
- Based on the IV (implied volatility) at the time of my trade, the lower limit of the approximate expected stock price range by the expiration date was around $38, or $3 above the strike price. Note that this is just an approximation and the IV and expected price range will change over time, but it's another data point that I use (in addition to others, see below) to decide on a strike price.
- The $35 strike price was well below the blue 20-day and the green 50-day moving averages (see chart below). Since breaking above the moving averages back in mid-Nov 2023, either the 20-day or the 50-day moving average has been serving as support.
- The $35 strike price level served as support in Feb 2024 before moving higher. It may serve as support again should the price come down this much. See the white circle and annotation in the chart below.
- SOXL has been making higher lows (see the solid white trend line in the chart below, my own interpretation) and it's been bouncing off this trend line several times. It might find support here again, should it come down this much.
- There are several potential support levels above the strike price, should SOXL fall from here. Examples are the blue 20-day moving average (around $44.50), the white support line around $42-$43, the $40 level (previous resistance/support, see the thin dashed white line in the chart below) as well as the green 50-day moving average (also around $40).
- I decided to choose a lower strike price with a lower delta of 0.1 (“10 Delta”) and below several support levels, as SOXL has been quite volatile recently.
- The RSI was below 50, so not at extreme overbought levels.
- SOXL is an ETF taking out the individual company risk, although bear in mind it's a single-industry ETF (semiconductors) which limits the diversification effect.
- Note that SOXL is a 3x leveraged ETF and can move fast and be very volatile. With the right catalyst this option can quickly move in the money (ITM). Make sure you are familiar and comfortable with these 3x leveraged ETFs and its volatility before placing any trades.
