On Fri May 6 2022 the April Non-Farm Payroll numbers will be released at 8:30, before markets open. Analysts are bullish on the numbers but believe they will come in at 400,000 lower than March’s numbers.
For April analysts are expecting the unemployment rate to come in at 3.5% which is lower and is expected to continue the Fed’s tightening.
I am using June 17 expiry which should give this trade plenty of time to reach the goal of a 100% return and possibly beat it.
This trade has to be put together by Thu May 5 2022 (today) by 4:00 PM to use this strategy. The morning was perfect. In the first 15 minutes I bought the long puts and setup the short calls. In the plunge I bought the long calls and setup the short puts. This was just excellent!
Handling The Trade
These trades done each month just before the monthly unemployment report, are among the most volatile and among the most profitable of the strategies used. The returns have seldom been under 100% but it can take a full trade almost to expiry for the trades to provide the best return as I often trade both the put side and call side of the trade over the time period leading to expiry.
I usually scale out of the trade over a period of days to weeks in small groups of contracts, often just 5 contracts at a time or even 2 or 3. For example when there is a plunge I might sell a couple out especially if there is a good profit on the long side of the trade. When that happens I often check the short calls and close some of them if the opportunity to close is very cheap. Anytime a short call or put is down to below 20 cents I am placing offers to buy to close early and keep reducing the price I am willing to pay. At 10 cents I don’t haggle longer but close short positions.
Make sure to read the full trade article before deciding whether to enter such a trade today. If an investor has never used this trade method before, make sure to paper trade to learn it. My advice is investing is a long road to big profits so spending even a year to learn a strategy is not “time wasted”. Losing capital however is opportunity wasted so paper trade to learn a strategy and only apply capital when returns from paper trading are consistently winners.
June 17 Expiry (43 days to expiry)
I am aiming for a return of at least 100% in this trade due to the length of time until expiry on June 17 which at 43 days is 7 days less than March’s trade but should be enough time to boost this return beyond the goal.
Put Side of the Trade
Bought 30 put contracts of the $420 put strike for $12.456 (average) at 9:37 = ($37,368.00)
Sold 30 put contracts of the $400 put strike for $10.445 (average) at 11:08 = $31,335.00
Spread Size = $20.00
Cost = $6,033.00
Call Side of the Trade
Bought 30 call contracts of the $420 call strike for $11.99 at 11:23 = ($35,970.00)
Sold 30 call contracts of the $435 call strike for $7.707 (average) at 9:34, 9:41 and 9:44 = $23,121.00
Spread size = $15.00
Cost = $12,849.00
Cost Of Setup of Trade:
Commissions = 120 X .25 = $30.00
Total Capital At Risk = $18,912.00
This trade has a goal of earning at least 100%. The cost is lower than March’s unemployment report due to the morning plunge in the S&P which worked out very well to reduce the cost of the trade. The size of the trade is unchanged.
The put side is wider at $20 and costs less while the call side is tighter at $15 but costs more. The market maker is biased to the downside which is known by looking at prices for the put strikes further out of the money which remain elevated versus similar call strikes.
Always A Chance For Losses
Even though there have been no losses with this strategy in 16 years of use as of 2022, eventually there will be a time when losses will occur. Remember stay protected and read the comments below.
Remember these are high risk trades. I sell out in small groups and as you can see from the purchases, I buy and sell at various times to setup the trade, hoping to get better prices as the market swings up and down. If you have not done this type of trade before, it can be difficult to enter and exit properly which can mean losses.
Consider paper trading this strategy to learn how to enter and especially exit the trades. If unsure but still wanting to use actual capital, stay with just a very few spreads, perhaps only 1 or 2, until the strategy produces significant and consistent profits. I don’t believe in risking actual capital until a strategy is learned to the point where trades are consistently profitable.
I am not a financial planner or advisor and have no investment accreditations. I am an investor who has been trading since the bear market of the mid-1970’s. Nothing presented is advice or recommendations. These are simply trades I am entering or considering.
Control Risk By Paper Trading First
Just to repeat:
Remember that these are high risk trades that can result in losses. I always suggest paper-trading until profits are consistent and investors understand fully how to enter and exit the trade through scaling out and taking advantage of spikes and dips in the S&P. Paper trading insures there are no actual losses of capital and that is key to building confidence and becoming a better investor. Most discount brokers offer real-time paper trading. If your brokerage does not provide it, call them and ask to be sure and then try other discounters such as Interactive Brokers (which I use), TD Ameritrade, Charles Schwab and dozens of other brokers who do have real-time paper-trading. To find some offers Google “real-time paper trading account” without the quotes. You should get a list of discount brokers.
I know that paper-trading seems like a waste of time for most investors but investing isn’t about making an instant profit. It is about building a portfolio you can rely on for decades. Spending a year paper-trading to learn how to take profits is a small time period, when you consider the protection it allows your available capital and the prospects to grow a portfolio for the future.
Here are three articles explaining the importance and value of Paper Trading:
Paper Trading: It’s Importance and Value – This article is open to all investors
Paper Trading and Setting Goals – This article is open to all investors
How To Paper Trade for Profits and Protection – This is a members only article
Questions? Use ASK TEDDI
Disclaimer: There are risks involved in all investment strategies and investors can and do lose capital. Trade at your own risk. Stocks, options and investing are risky and can result in considerable losses. None of the strategies, stocks or information discussed and presented are financial or trading advice or recommendations. Everything presented and discussed are the author’s own trade ideas and opinions which the author may or may not enter into. The author assumes no liability for topics, ideas, errors, omissions, content and external links and trades done or not done. The author may or may not enter the trades mentioned. Some positions in mentioned stocks may already be held or are being adjusted.