• Christopher Hall

Trading the Ranges for an Extra 5% Income per Month

Wild market rallies up +5% and down -5% on a daily basis are creating opportunities for the experienced traders, options traders especially. "The highest premiums I can remember", says Gary Glover from Novus Capital, as Glover explains the trading ranges that he's working within, the companies he's trading and the strategies he's using to collect higher returns - some an extra 5% a month through options premiums.

[00:00:08] Large swings both up and down on the markets in the main trading swings and making the most of the volatility is Gary Glover from Davis Capital. Good morning, Gary. How are you? You're great. Chris Hager Very well, very well. As if optimism in the markets and it's been really hard, you know, last week you were close to fully invested. Can you hit any profit targets yet or what are you doing inside the portfolio here? [00:00:32][23.5]

[00:00:32] So just last week, I saw it close to a few more targets and then didn't sort of hit us. [00:00:38][6.0]

[00:00:39] So. And so I sort of pulled back a little bit there. But yes, I've just adjusted a few this a little bit closer. They just sort of hoping to get a few done there. So don't expect to get hit on all my targets, but I get a few just on policy because you just seen the market stocks are sort of up 5 or 6 percent, down 3 or 4 percent. Men up for an energy down 6 6. Just so. Yes. So it kind of got to sort of travel through hooks out there and try and try and hook a few of them on. [00:01:08][29.5]

[00:01:08] They sort of jumps here. So I'm sort of using a mix of sort of sort of Tiede sort of sell some order of, you know, a lot of different levels and therefore some ourselves. And and and also I'm using a lot of options here in the options market just to splendor. As I say, I've never seen a better market for selling calls and put us through the ringer. Yeah. So I'm just really using that on top of a lot of portfolios. [00:01:32][24.1]

[00:01:33] But my method to look for the multiple polishers to sort of have those those labels and then if we get hit feel like targets then yeah. [00:01:41][8.0]

[00:01:41] The whole idea is we're sort of trying to get sort of hit on the on the downs and then once we bounce so we get get a few hit on the sales there and just kind of run a full portfolio sort of heavy as we get on the low side and among the bands from getting in that trunk, try and sort of get some of those outguess as I get. So that's the first thing. [00:02:01][19.8]

[00:02:02] That's a good point to look at the index. So looking at your weekly report that comes out. If we jump on to the exchange, we can see a weekly chart, Neal, looking at the low that we recently saw and have rallied from. How important is the date on this low? [00:02:16][14.0]

[00:02:18] Yeah. That just sort of on the weekend they just had a having a look. It's obviously sort of gone a month, sort of high to low there. Which is interesting cycling itself there. But the 23rd of March, it's here anyway. So it does any sort of seasonality work or that's the equinox. [00:02:33][14.6]

[00:02:33] And they do suggest that, yeah, every year there's at least one or two major global industry, which you're loudon's, which will basically change. You trained on the September or the March equinox. And we've seen quite a few times actually in recent years on the S&P and the Dow, particularly the September equinox has been up there, not been a high there. So you can go back and look at basically a last three years. I think September 2017 was a was a beauty term. [00:03:00][27.1]

[00:03:01] But it just basically it's it can be a change in seasons and and it's can be a change for the for the market as well. So just interesting that we've sort of pivoted off of that timing there. So I'm here, but I'm not all big. [00:03:15][14.2]

[00:03:17] You'll be trading it to the right hand side is a red box. And you talked about sort of flirting with the higher levels and then buying back sort of in the lower part of the market. Did that red box to the right is that sort of range that you were using as a yardstick for buying and selling? [00:03:32][15.1]

[00:03:32] Yeah. Yeah, correct. So basically historically with we tend to sort of month we sort of first like down there we tend to sort of bounce there. I mean if we even go back to 1929, which was the start of the Great Depression and even the market, even that market bounced over the 50 percent level. So, you know, historically most markets will bounce back sort of half and three, honestly, like a lot of them will bounce back even with a sixty one point. They'll actually go past, you know, everyone's expectations and everyone's super bearish and, you know, works full of doom and gloom. So no one's expecting the market to rally. So it's sort of exactly what it does is no resistance. And yeah, guys, it's pretty quick. And as hasn't ever more so tell you, it's sort of if you think about a bull market, you climb up really quite slowly. And then when the market pulls back, it pulls back really quickly. So the opposite if a bear market. [00:04:22][49.9]

[00:04:23] So bear markets sort of once they sort of start to get into action here, that although this has been pretty quick on the way down, normally might be a bit more work on the way down the name. Basically the you know, the big waves or the you know, the countermoves can be really short and sharp. So, yeah, go back to you know, we talk about the 2000, 2003 market. They just look how quick all those sort of rallies were in that period. They are just just really fast. So that's why option's a beautiful thing. But I would just sort of also you just going to sort of t cells as well. So sell some a little bit, maybe sell some at the thirty eight point two retracement level, sell some at 50 percent and then sell the rest at sixty one point eight. You know, I think they're lucky enough to get up there. So that's sort of my mentality here. So I'll just be I'll be sort of trying to play the Rangers in that manner. So, yeah, that's the way to trade the Aussie. [00:05:18][54.8]

[00:05:18] And we'll have a look at the US markets that we've had a lot more data on the safety net or how the game is played out before we do. Let's take a look at the S&P 500 where it is now. [00:05:27][9.4]

[00:05:28] Now we're looking at lows and trading ranges. What does that tell you? That broadening Top End? What about the election impacts here? [00:05:38][9.4]

[00:05:38] So you're just looking at. [00:05:39][0.9]

[00:05:41] You know, I just sort of trying to look at other kind of roadmap being forward here. So but look at the sort of normal cycles of 0 year cycle. Look at 0 1 2, you know, sort of bearish cycle and just how quick this is being sort of this year. So I just of looking forward here. I just don't think this is a pretty deep move. Probably could come back a little bit deeper just with their megaphone sort of pattern there. But maybe we'll retest in May, isn't there? But I do think more than likely, once the market sort of settles, he will probably get some sort of bounce here and it could take us all the way through to kind of November through the U.S. election. Just just got a lot of cycles actually coinciding, culminating around that period. So I just see it. Obviously, that's sort of fun. It could be a key code for for the for the US and stuff. So, yeah, just just interesting. That's the undisputed time in justice in terms of the years as well. So oftentimes the kind of zero year can be. So they start the move and then the one can be a bit of a bounce and then then you're retesting you two all the time. [00:06:50][68.8]

[00:06:50] But this is missing pretty quickly. I think it's going to be a lot faster here and there's a lot of big cycles culminating in 2021 here. So that's kind of you know, I was looking for this to sort of be around that sort of 2019 into twenty one. That was kind of the cycle here. But I can broaden out there so we can broaden into a low here. I just just think that's a bit of a roadmap. I'm not sure whether we do something hard and fast into March 21 or maybe we go out into the usual sort of seasonal the early October lows. Always, always, always a good return. [00:07:24][33.6]

[00:07:25] But yeah, it's sort of fun. Obviously looking at sort of. I guess around that visit as a good road map. [00:07:33][7.6]

[00:07:33] So, well, the road maps we use quickly look at some of the other ones. He Fulda Twenty 29 to 32 crash. He did mention nearly 50 percent retracement from the drop. It barely back up. So that was a big wave. And then we just kept getting more and more a bear realizing that slowly bled out for years. Are you seeing something like that or is we doing a government and regulatory approach with different. [00:07:58][24.6]

[00:07:59] Yes. So just looking at look, it's always important to sort of study previous declines in because we're sort of tender tend to sort of follow, you know, history all the time. So repeat itself. So we do sort of follow in. And look, this is like basically when you do get a sort of deep blow like this in places, you normally get a decent sort of bounce there. And look at this. The odds do suggest you sort of probably 80, 90 percent time to come back and retest the low in some form, see all the others, come back and make a highlight where you come back and make a margin. So that's that's just a probability. So we just sort of know that's a likelihood. It just does happen. You know, look at the 87. You look at 87 is probably the exception there. We didn't really. We'll come back and retest, but was sort of like a high low. But that was one marker that sort of built. Obviously, after that, you know, basically it was Mark, it was sort of was NACAC pretty early. And then he just took a long time to get back. That took basically almost a year to go back to the 50 percent level. But the low held and that never did look back there. So it's a possibility for us if we if we start getting some or some good news coming out that the virus there. But yeah, I'm not sure that's the way to go here. I think more like the twenty nine sort of move, but I just don't see it being as long as this as well. I mean to go back and look at what you read about Quinault 32, you know the government, you know the handbrake on the economy. Well, just like those so many failed bailouts and central banks. [00:09:33][94.0]

[00:09:33] And Olena, basically the market heavyweights at the time were asked to put money in and it just it just kept falling out for hours. So there was just no agreement, no action taken. And then here the economy sort of suffered. So, you know, it now, obviously, you know, central banks are throwing money at it, throwing, throwing the kitchen sink, literally, you know, trying to turn these things around. So we saw at the GFC, which was pretty nasty, how quickly that was out. We turned around even though it was a pretty deep correction. So I just don't see it being anything like this. This thing. The Great Depression, they I think, you know, where we've responded quickly here, went to, you know, a lot more changes. So we can get. [00:10:12][38.9]

[00:10:13] You know, maybe something a bit deeper here, but I think it's going to be like a silent depression if we do, you know, if everything goes wrong from here. So that's, you know, it's a small possibility. But if we if we do something about it, it's not gonna get a stake and it's not going to be anywhere near as long. In my opinion. So I just don't see that as a Faisel sort of market. I think more likely the 2000, 2003 period where we saw the bubble top up and down, but come back slightly deeper each time. [00:10:43][29.3]

[00:10:43] That's probably more likely from onthey and that's sorta similar sort of overvalued market. Lot of uncertainty around at the time. Just a similar. So basically just matches up all my cycles, sort of similar sort of buy cycles. So that is to that's kind of meh. I'm sort of looking at this more of a road map here. [00:11:02][18.7]

[00:11:03] So let's apply that roadmap and you've got some training issues that you're working with at the moment. You had mentioned it's a phenomenal time for options training. If you know what you're doing or if you need to advise, obviously somebody can call you to work within the options market. Let's have a look at the Ramsay health care chart. It's been hit hard like most the companies on the ASX. What's an example? You can use options to aid your training. And he's a condition. [00:11:28][24.9]

[00:11:29] You can see here. So I mostly bought some some some Ramsy there on the 10th, the third socks. I was a little early to buy so much. So I got a good entry on that day and had a cracking HATTLEY call of the day. [00:11:42][12.3]

[00:11:43] We saw there that the next sort of week or so it actually fighted went a bit deeper there. But throughout that period, it was very volatile. Swings up and down each day were pretty, pretty massive. So what you can do there if you haven't had a Interbrand at fifty seven forty six level, the options premiums are pretty. We just you'd show was able to write like a one month's $59 call and pick up a $3 premium such effectively like 5 percent. So what that does is it does Katmai upside. So 50 plus the three means it capped at 62. So that's that's my upside there. But it does basically take $3, basically gives me another 5 percent leeway on my on my break up and so gives me a little bit of rent a movie. So it's just a great tool to use for hedging. [00:12:31][47.8]

[00:12:32] It's great. Mean, that's basically a 5 percent premiums like a 5 percent dividend that you received a month. So if it finishes under fifty nine by the end of the month, I'll keep my stock or keep my premium and then hopefully after about another call on a strong day as well. So but yeah, the downside is that I'm just cutting my upside. But if you think this is going to be a pretty volatile up and down type of market, then it's a really good strategy to generate some income stream. [00:13:02][30.3]

[00:13:03] Absolutely. That's what you've pointed out before. You think it's in be range bound. Strong, strong rally, strong volatility. So perfect for the options market. The other ones that you've looked at, you've got Medibank Private. So I've heard we've heard those reports say that they're very well financed into it. So then don't look at a fall off a cliff because they've got great debt coverage or no debt from a trading perspective. You've also been trading this in the last couple of weeks, haven't you? [00:13:29][25.8]

[00:13:30] Yeah. So just sort of it's it's been a great sort of stock, actually, of a covered call, just normal. Basically, it pays a reasonable yield that often sort of, you know, also can be range bound to the times. Obviously appearance. It goes up a bit heavy and down a bit low there. But after a reasonable correction, I just saw it was know back to a reasonable sort of yield. So I've sort of bought stock before it goes ex-dividend. So I've picked up the five point seven cents. I notice some because it's been moving up and down quite sharply. Again, the $A money calls just, you know, massive premiums. And so like the 290 call for just one month was offering 14 cents, which is like another 5 percent premium. So I'm not even selling out the money. I'm selling out of the money here. So I leave a balance to say and I you know, I make 20 percent on a capital gain on the Klima by myself level where I'm obligated to stock go out for a straight 14 cent premium plus by five point seven cents. So the pretty decent sort of, you know, the 14/15 thing going. [00:14:31][60.7]

[00:14:32] It's a good sort of you know, it's a good income into that look, again, uncapped. So my downside is that I'm cutting my upside down. I think 40, 50 percent gain for the month is not a proper return here, particularly in this market here. So my my hope is that it stays on the train 90 and then hopefully I can write a Maykel. I don't know if I'm not going to at 5 percent. I do expect the market to, you know, to to calm its, you know, a little bit. [00:15:00][27.5]

[00:15:00] But I do. I do expect it to stay stay quite volatile. So I think maybe I'm going to get three or four percent premiums. And the money continually this year, if it remains quite volatile. So that's that's the advantage of this sort of strategy. If you're sort of neutral and you think we just take swings back and forth, then then it's it's just a good way to try it. He had just come a little bit and sort of insurance, little bit of hedging there, but you just know the income you generate, it gives you a little bit more because it has been a portfolio. Yeah. Just a.. Yeah. That's like a dividend or I guess I just take it off your your entry price. So basically it's sort of you know, this gives you a little bit more breathing room here. So you get a little bit of rent to be wrong. I guess that's what we need in this market cause it would buffer any slug. [00:15:51][51.2]

[00:15:51] It means that we're getting to rent it out. You've got Computershare and out one solid drop, a very fast drop. That's not uncommon. To what we've seen in the markets of the last few weeks and months. [00:16:02][10.4]

[00:16:03] We tried even working with Computershare. [00:16:05][2.3]

[00:16:07] Yeah, so look, I have bought a bit of stock, a few concerened, but I noticed that the vaults were just through the roof there initially. So, you know, early in the week there, I'm in the market three weeks to two expiry there, the April $23 call. [00:16:22][15.4]

[00:16:23] So, well, when the stock is at nine dollars. The payments were like a dollar for the April calls and a dollar for the IPO puts it. So you see picking up a 11 percent premium at the money. So if you sold a $9 put or saved eleven percent premium, what that does is it gives you eleven percent buffer on the downside. If it finishes above nine, then all you do is make you kind of make a little percent. That's that's the downside you capped with that return. But it does give you eleven percent buffer if it does go lower, but then you get assigned it, it's like an eleven percent off your entry price which is eight years. So this gives you a bit more room there so. [00:17:03][40.0]

[00:17:05] But yeah I mean I'm, I'm happy to either stock down here. I think it's a great credit card entry price. So but for me I guess my worst case scenario is I've got the levels at premium on some because if it bounces from here, then I'm happy just to take that home. Oh, wait for me to come back in May and then maybe do it again. And then, then maybe it won't look back after that. Maybe recover there. But it doesn't change what you said individual. [00:17:32][27.8]

[00:17:33] That's not such a bad sell too. [00:17:35][1.2]

[00:17:35] Yeah. Yeah. Yeah. I'll get the other example I got there is that even even if you're sort of don't want to chase the premium, it's hard. You can just sort of maybe sell something out of the money. [00:17:45][9.7]

[00:17:45] So you bought the stock aside, $9, then you can write a $10 call and get close to, say, 48 cents, which is about 5 percent. So what that does is sort of give you a dollar upside, which is roughly around that sort of 10 percent capital gain potential, and then you pick up a 5 percent premium as well. So that that can probably give you a little bit more capital gain potential if you want to sort of stretch it out a bit more. It means you get a bit missing a hand now, but kinship gives you a bit more potential capital gain. You think we can rally a bit more from here so you can kind of think of the strategy depending on your view a little bit as well. [00:18:23][37.5]

[00:18:23] There's many ways to skin the cat options. Well, thank you very much. Gary Glover. So it's the trading insults, the ranges and also the trading opportunities. And we look forward to coming back next week to see what you're trading, where you're making money and how you helping clients. Thank you, Gary. Thanks, Chris. [00:18:43][19.8]


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