DailyPlay Updates – June 15, 2023

Investment Rationale

The Fed took a pause from raising interest rates in June but left the door open for further rate hikes in July. Markets initially sold off but recovered almost all of it by the close, effectively shrugging off the idea of further rate hikes. The Nasdaq closed up 0.73% on the day and longer-dated bonds caught a bid as well. At the moment the bullish trend remains intact, however markets are overextended after a 25% rally over the past 3 months. This is a difficult environment to trade, adding new long exposure comes with high risk of a pullback, yet shorts into a bullish trend faces a higher statistical chance of loss. So for today, we will take a pause from entering new positions and look to adjust an open trade. ORCL beat on earnings and continued its upward momentum, let’s roll our July 7th debit spread for a 75% gain and take the profits to buy 5 Contracts of the Aug $120/$130 Call Vertical @ $4.25 Debit. This locks in about $450 in profits, while maintaining further upside to $130 without any additional risk. 

As a reminder, our focus of the DailyPlay signals is not the ideas or stocks themselves, but teaching position sizing and risk management techniques that help you become profitable. With ORCL, I would rather risk turning a nice profit into a much smaller winner, if it gives me the opportunity to turn my initial investment into a home run. You do not need to hit many home runs to offset a large number of small losers. However, this only works if we remain disciplined in cutting losses quickly. If ORCL were to close above $130 by Aug expiration, that equates to roughly a $5,451 gain, which would offset about 5 of our losing trades alone.