Handling market Volitility?
The market has been down for the past 6 weeks. There is no way that I can avoid the market downturn. As I am a trader, also, I don't bet against the market generally. For that, I got burned in this market for sure.
I do not know if the market is going up or down. The only thing I know is there is always volatility, and in the long run, the general market will go up. If this premise is correct, then I can plan for the trading. There are many man strategies, but lately, I am only doing a selling put and cover call, and poor man's cover call is the main strategy that I do.
One thing I notice is that if I can have an unlimited amount of money, there is no way to lose in the stock market. Of course, there is an outlier, but probability-wise, it is really hard to lose is what I am going with it.
For instance, I bought the QQQ option for September 2022 for a strike price of $370 last year. At that time the price was around $390 and the premium was about $40ish. The thought behind is that if I can sell the option for the course of 1 year, then I can get the money back. If the market was going up, then I can make some money on it. That was the premise I was playing this option strategy.
Turns out this market, the market was diving faster than I anticipated. Now the price is at around the $1 to $2 range as of right now. It went from $40 to $1. The question now is can I get that premium back?
As the price went down, I bought more and more, and now the average price of the premium is @$18.88. As long as I can get the $19 then I still can get break even.
As earlier I mention, if I have an unlimited amount of money, I can't lose money is in here. For now, because my capital reserve is not enough that I cannot sell too much below $370. If I have capital, then I can sell around $340 or $330, then per week I still can get around $1. If you do not have a reserve, then the only thing that you can sell will be 370 which will give you about 1 - 2 cents. The probability of getting it to 340 or 330 at this time for one week is extremely low to nothing. If the market were to go up, then you still can push it to the next week and your value of the underlying option will go up, so you will still make money. Hence you will not lose the money in the long run. For now, per the option you will need an additional $4000, if you are using a margin, then it will be $2000 to reserve the play this strategy. $4000 to $100 per week. and it is $400 per month. It means, 10% a week. which is a great deal.
There are more things to learn every day.
Hope everyone is safely invested.
I am not a financial advisor. Any trades listed are my own personal trades and meant for educational purposes only. Option trading bears a high risk and high return strategy for traders.