DailyPlay – Closing Trade (AIG) – November 8, 2022

Closing Trade

• AIG-96.43% Loss: Buy to Close 6 Contracts Nov. 18 $54/$58 Call Verticals @ $1.68 Debit. DailyPlay Portfolio: By Closing the remaining 6 of 9 Contracts, we will be paying $1,512. We partially closed this trade on November 2 with 3 Contracts at a $2.42 Debit. Our average loss for this trade is therefore 78.97% and our average cost basis to exit this trade is $1.93 Debit.

Investment Rationale

After a back and forth session, bulls took control late in the day and again pushed the market higher – just as they had on Friday. The bullish move off of a failed potential bearish Propulsion Momentum level touch (at SPX 3703 last week) continued, with the index now some 100 pts. higher than there, while also 100 pts. below last week’s high. 

If today weren’t Election Day – and I have no idea how results are going to affect the market tomorrow or going forward – I’d say that the bounce could potentially take the market back up to near last week’s high. And maybe it will go there anyway, but let’s see what Wednesday’s move pans out to be. Bulls are certainly feeling more emboldened, with the rough double-bottom from June and October, along with the lows made right at the 200-WMA.

So, yes, bulls have reason to believe a bottom is in. And I don’t disagree; it seems like there’s enough to think that we have one given what we’ve seen since the October low. However, note that rates have not pulled back at all, and the UST 10-yr. closed yesterday just two bps. beneath the highest close of the year. If they break to new highs and then stay above 4.3%, I think it highly unlikely that the equity market can hold up. If analyst’s lower forward earnings numbers as I expect them to need do, I think it highly unlikely that the equity market can hold up.  And if inflation doesn’t materially pullback anytime soon – which I suspect it won’t – I think it unlikely that the equity market can hold up.

So, let the bulls have their fun for now. As far as I’m concerned, it remains a rally in a bear market.

I want to exit the AIG bearish Nov. 18^th $54/$58 call spread we have on, as it closed above its Propulsion Exhaustion level at $58.39 that I said I would use as the stop on this trade (as well as why I chose the $58 hedge strike in the first place).