Tuesday, 14th September, 2021
1/ Indexes slid lower even after CPI report
2/ Are global investors nervous?
3/ Review this AZO option trading strategy setup
4/ The bottom line
1/ Indexes Slid Lower Even After CPI Report
Stock market indexes slid lower from the open, pushing prices below last week’s lows by sessions end. The market reacted negatively to the Consumer Price Index-Urban (CPI-U) report released earlier today by the U.S. Bureau of Labor and Statistics (BLS). The report was similar to last month’s level of 5.4% annualized, signaling that inflation hasn’t really slowed.
The chart below displays how the ETFs of the four major indexes have experienced the first multi-day slide in several months. State Street’s S&P 500 Index (SPY), Invesco’s Nasdaq 100 (QQQ), iShares Russell 2000 (IWM) and State Street’s Dow Jones Industrial Average (DIA) ETFs all traded to their lowest price in at least a week. This may indicate that investors are feeling nervous about how the economy will perform in the months ahead because inflation is still evident.
2/ Are Global Investors Nervous?
The Australian Dollar/Japanese Yen (AUDJPY) has historically been closely correlated with the Nasdaq 100 (NDX). Over the past year this correlation faltered a bit, but now seems to be on the mend. That is unfortunate for NDX because it may mean that the forex pair will lead those stocks lower.
Experienced chart watchers know that the AUDJPY pair makes a good proxy for global attitude toward growth investment. With the AUDJPY appearing to be positioned to track lower, it could be forecasting a similar downturn for the NDX. Because markets are experiencing a more than one week-long downward trend, the AUDJPY price action could be a signal that investors see a continuation of the downtrend instead of a reversal.
3/ Review This AZO Option Trading Strategy Setup
AutoZone (AZO) will release its fiscal fourth-quarter earnings announcement Sept. 21, before the market opens. Analysts are forecasting earnings per share (EPS) of $29.69 to go along with $4.54 billion in revenue. AZO has beat analysts’ EPS expectations in 11 of the last 12 quarters. AZO has historically offered the opportunity for a winning bull put spread option trade ahead of earnings.
A bull put spread is an option strategy that involves simultaneously buying and selling two put options with the same expiration date, but different strike prices. Over the last 12 quarters, this strategy has had a 75%-win rate, with an average return of more than 17%. The strategy calls for selling a 75-delta put and buying a 15-delta put. As per the image below, these statistics apply to bull put spreads opened one week before earnings and closed one week after the report is released.
Option pricing increases ahead of earnings in anticipation of drastic moves in either direction. As a credit spread, this strategy can profit from the typical drop in implied volatility that occurs after an earnings report is announced. This trade example is a strategy that appears to be insulated from that phenomenon.
4/ The Bottom Line
Stocks slid lower demonstrating that investors are worried about more than just inflation. The price action on the AUD/JPY currency pair seems to confirm this.
Originally posted on 14th September, 2021
Investopedia.com: The comments, opinions and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described on our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment or strategy. This information is intended for US residents only.
Disclosure: Interactive Brokers
Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.
This material is from Investopedia and is being posted with permission from Investopedia. The views expressed in this material are solely those of the author and/or Investopedia and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
In accordance with EU regulation: The statements in this document shall not be considered as an objective or independent explanation of the matters. Please note that this document (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and (b) is not subject to any prohibition on dealing ahead of the dissemination or publication of investment research.
There is a substantial risk of loss in foreign exchange trading. The settlement date of foreign exchange trades can vary due to time zone differences and bank holidays. When trading across foreign exchange markets, this may necessitate borrowing funds to settle foreign exchange trades. The interest rate on borrowed funds must be considered when computing the cost of trades across multiple markets.
Disclosure: Options Trading
Options involve risk and are not suitable for all investors. For more information read the Characteristics and Risks of Standardized Options, also known as the options disclosure document (ODD). To receive a copy of the ODD call 312-542-6901 or copy and paste this link into your browser: