Note: Summary notes of the meeting are below the video in this article.
Details
Session Opening and Market Conditions Stephen Cox noted that the futures were down, which was beneficial for the US 500 and XSP trades, and stated they would begin by discussing risk management and the differences between SPY and XSP, encouraging participants to ask questions (00:00:00).
SPY vs. XSP Options Explained Stephen Cox differentiated between SPY, an exchange-traded fund that tracks the S\&P 500 and is physically settled, meaning assignment of shares is possible if a short put option is in the money at expiration (00:00:59), and XSP, which is cash settled and does not involve share assignment. Stephen Cox also mentioned that XSP has lower margin requirements due to the lack of assignment risk (00:02:53). Stephen Vajda added that SPY is American style, allowing assignment before expiration, while XSP is European style, settling only at expiration, though Stephen Cox clarified that XSP can still be closed before expiration (00:04:03).
Premiums and Margin on SPY and XSP In response to a question from Roy Tyrrell about premiums, Stephen Cox compared a short 650 put on SPY with a margin impact of $10,700 and a premium of 265 (based on the previous day's close) (00:05:06), to the same put on XSP with a margin impact of $6,800 (00:06:06). Stephen Cox explained that XSP premiums are generally slightly lower due to no assignment risk and less margin requirement. They also noted that having a trade open on Interactive Brokers incurs interest on the margin amount (00:07:12).
Target Returns and Interactive Brokers vs. IG Index Stephen Cox addressed Roy Tyrrell's question about target returns, stating that the return is slightly less on a $10,000 account using XSP compared to IG index. Stephen Cox is targeting 20% for the year using Interactive Brokers for the same strategy applied on IG index, which they noted offers more "bang for your buck" due to tax-free spread betting (00:08:13). Stephen Cox further explained to Stephen Vajda that interest charges show up in the account's activity statement under "Interest Payments and Accruals" (00:09:21).
Risk Management and Rolling Out and Down Strategy Stephen Cox discussed how to manage trades when they move against the position, noting that the short 650 put trade was showing a temporary half a percent loss (00:10:25). They emphasized that the probability of success remains high, but advised preparing for the unlikely scenario by learning to "roll out and down," which is outlined in the courses (00:11:35). The strategy involves buying out of the current contract (e.g., February 650 put at a cost of $28) and opening a new contract further out in time and lower in strike (e.g., selling the March 6,000 put) for an additional credit, thus lowering the break-even point (00:12:34).
Applying the Risk Management Strategy Stephen Cox stressed that the key to managing the short put strategy on an index is to roll out and down before the underlying price drops below the strike price (00:14:46). They suggested setting a trigger point for rolling, such as 100 points above the strike price (e.g., 6,500 for a 6,400 strike), and demonstrated how to set an alert in IG index for the US 500 (00:15:46). Stephen Cox emphasized that this proactive approach provides a risk management plan and ensures a substantial "wiggle room" against a margin call (00:16:47).
Discussion on Margin Levels and Volatility in Trading Roy Tyrrell asked if a 70% margin usage was too high, to which Stephen Cox responded that 60% is a preferred ceiling for protection, noting that higher margin usage equates to higher risk (00:16:47). Michael Carroll shared a successful experience of day-trading the put options due to volatility, selling a put when premiums went up to 425 and closing it for a return of 120 as premiums dropped, which Stephen Cox validated as acceptable for those with time, though they personally prefer letting options run to expiry (00:18:43).
Strategic Strike Selection for Rolling Out and Down Stephen Gavin inquired about the necessity of choosing a new strike price that matches the cost of exiting the current position when rolling out and down (00:20:43). Stephen Cox clarified that while their general strategy is to aim for the lowest break-even point possible for nervous traders (00:21:33), a trader could choose a higher strike (e.g., 6,200 instead of 6,000) to generate a larger additional credit if they are confident the market won't fall significantly (00:22:32).
Impact of Bitcoin and Metals on the S\&P 500 Stephen Cox discussed the relevance of Bitcoin's continued decline and its potential impact on the S\&P 500, noting that a growing cohort of younger traders involved in crypto and possibly using high leverage could face margin calls that necessitate selling stocks, creating a knock-on effect (00:24:23). They also pointed to the sharp sell-off in silver, noting that highly leveraged positions in metals could similarly lead to margin calls affecting the S\&P 500 (00:26:30).
Analysis of Google and Meta Earnings Stephen Cox analyzed Google's 4% stock drop despite positive earnings, attributing it to the planned increase in AI spending, similar to Meta, which was not initially punished (00:28:40). Stephen Cox views the substantial AI investment as a positive long-term development, suggesting that any sell-off in Meta and Google should be viewed as a buying opportunity (00:29:39).
Semiconductor and Tech Stock Opportunities Stephen Cox identified Nvidia as a potential beneficiary of the increased AI spending by Google and Meta, suggesting that the fear of slowing spending for the chip seller is unwarranted and viewing the current price near a support level as a buying opportunity (00:30:46). They mentioned that AMD was "crushed" after earnings but their models still show significant upside for both AMD and Nvidia (00:31:49). Stephen Cox suggested splitting bets between Nvidia and AMD when initiating a position (00:33:03).
Dell, Oracle, and Lyft/Uber Outlook Stephen Cox expressed interest in buying Dell stock if the price returns to between 115 and 116, noting that the increased spending news is positive for Dell (00:33:03). They advised waiting on Oracle and Salesforce until their downtrends end. Stephen Cox is also watching Uber and Lyft, which are starting to pull back, and suggested splitting investment between them due to their differing business models and market concentrations (00:34:07).
Summary of Stock Watchlist and Long-Term Trading Advice Stephen Cox summarized that they are preparing to pull the trigger on Nvidia and AMD soon, are very interested in Dell at the right price, and have no immediate interest in CRM or Oracle. In response to Stephen Vajda, Stephen Cox advised holding Dell stock (or LEAPs with a far expiry) for the long term but suggested considering offloading or selling a call against a LEAP if the RSI reaches 70 (00:36:05). Stephen Cox also confirmed to Richard Fitzgerald that buying Meta to dollar-cost average is advisable, as they project strong growth for the stock (00:38:01).
Volatility and Option Pricing Stephen Cox confirmed to Stephen Gavin that if the US 500 remains above the short put's strike price at expiry, the option will expire worthless, resulting in full profit (00:41:13). They explained that high implied volatility (VIX) causes option premiums to rise, but if the market settles, the VIX drops, and the option's value disintegrates, which benefits the option seller (00:42:12). Michael Carroll added that the VIX spiking presents a great timing opportunity to sell options (00:45:10).
Closing Remarks and Resource Reminder Stephen Cox concluded the meeting by reiterating the benefits of their options strategy, which avoids major losses during market downturns (00:44:13). They reminded attendees to use the Quant AI tool for questions and to ask for a human agent if needed (00:46:13).
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