Last week, we sold 6x $16.50 put options on UPST for $.07 per share. Since UPST ended the week at $20.79, the options we sold expired out of the money. This is great for us as we just earned the entire premium of $38.10! Now on to week two. As I'm sure you've seen in the news, the overall market has been in a free-fall this past week. The S&P 500 fell almost 3% this week and about 10% this past month.
With global economies still struggling to get inflation under control and the strengthening of the dollar, it seems that this downward trend will continue for the foreseeable future. The question you might be wonder now is, "How do I make money off of this trend?" Well, this week's play will answer that question. Since the market tends to trend up, inverse ETF's tend to be considered a risky investment play. Triple leveraged ETF's are also typically deemed risky, so when you mix the two together, you get a very high risk-reward ETF. In this case, the ETF that is being discussed is SPXU also known as Proshares Trust Ultrapro short ETF. The objective of this ETF is to mirror 3x the inverse of the S&P's daily performance. This means that if the S&P goes up 1% in a day, SPXU is designed to go down -3% and vice-versa. So, if the S&P trends down 1.27% in a day like it did on Friday, SPXU should go up by 3.81% (true % gain was 3.75%). Very volatile, very risky. Since SPXU is so volatile though, the options premiums are pretty attractive. That is why, we are going to bet that the markets continue their downward trend and SPXU continues to go up by selling cash secured puts.
Notice how this screenshot of the weekly option contracts doesn't include any puts that are in the money. This is because we are going to continue to play it on the safe side and sell low delta low probability of option expiration in the money. For the risk tolerance of this challenge, we are going to go with the $19.50 contract with delta equal to -.10 and PITM (Probability in the money) of 13.76 and a price per share of .13. Since our current account balance is $10,038.10, we can sell 5 of these to earn $61.75 after commissions. As always, you can choose the strike that fits your personal risk tolerance and target profit, but since this challenge is more focused on consistent profit and this is a relatively risky set-up, I decided to go a bit more conservative with the option.
While inversing the market might make you feel smarter than the average investor, I would like to remind everyone what that actually means. When the market goes down, especially rapidly like it is now, everyday people are impacted. People that have been saving money their entire lives are forced to push their retirements out to future dates, people lose jobs. More tangibly, with the recession continuing to develop, people will begin to default on debt and house payments. This leads to great human suffering and death. If you make money from this downturn in the market, consider donating some of your profits to your local food shelter or homeless shelter. Trading is about making money, being human is about helping others, so please consider using this money to help others. Here is a link to find your local food shelter https://www.feedingamerica.org/find-your-local-foodbank and here is a link to find your local homeless shelter. https://www.homelessshelterdirectory.org/ Happy trading and I will see you all back here next week!
-Vlad
*This is not financial advice. Every investor should invest in companies and utilize strategies that maximize their financial goals within their personal risk tolerance. Trading options is a risky investment strategy.*
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