To The Moon

As the year-end approaches, the market gradually enters a clearing period and trading activity becomes lighter. Overseas markets are about to enter the Christmas and New Year holidays, which makes this a suitable time to review the past and think about how to position trading ideas for the year ahead.

Next year, like this year, is also expected to be a high-volatility year, with risks and opportunities coexisting. In January, there will be an introduction to the major trading opportunities for the coming year—stay tuned. In the meantime, even if the remaining time this year is relatively quiet, there are strategies designed for quiet markets, and this period is particularly suitable for using them.

The Nasdaq rebounded from support as expected

​Last week’s post stated very clearly that the Nasdaq’s pullback was more dramatic in appearance than in substance. In reality, there is no special year-end news likely to impact equity indexes significantly, and the Nasdaq’s key support level sits at 24,600. As it turned out, the Nasdaq pulled back to 24,650 and then rebounded sharply, which indicates that while U.S. equity indexes have not continued rising, there is also nothing especially alarming at the moment. Any real concern can wait until the support level is actually broken.

The Nasdaq is still tracking along its 20-week moving average. The year-end market also tends to feature a choppy-but-upward bias. In this phase, beyond simply holding stocks, it is also possible to trade using index-related options tools—there are many choices, as long as they are tied to the Nasdaq index, such as ETFs, index options, or other Nasdaq-related options.

The strategy is straightforward: sell Nasdaq put options that do not extend across the year-end, with strike prices selected in the area below the 20-week moving average. If the Nasdaq falls through that strike, assignment turns into taking the underlying, which effectively becomes buying the dip in a different form; if the Nasdaq stays above that level into year-end, the option expires worthless and the premium is kept. This strategy does not generate large profits, but it can provide relatively safe “ pocket money” at year-end.

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The biggest risk, however, is that Trump might suddenly stir up trouble and increase Nasdaq volatility. Even so, if assignment occurs, the effective entry price is still cheaper than buying at the current level. During the relatively quiet year-end trading period, strategies like this can be used more.

But the holding period must not cross into the new year; the expiration should be chosen before January 1. After the year turns, it is often the point when fund managers’ performance calculations reset, which can trigger large-scale position building and cause volatility to increase—this is something to watch.

Crude oil is waiting for a final dip

Although the Federal Reserve has continued cutting rates, the impact of those cuts has only boosted precious metals and has not boosted crude oil. This contrasting performance suggests that what the market is worried about right now is not inflation, but the possibility of recession.

The market is still debating which of the two—inflation or recession—will matter more to the Fed’s new chair. If the Fed keeps cutting rates in a restrained way while closely tracking inflation data, and with OPEC+ increasing production quickly, the environment is still not bullish for oil prices.

However, if oil were to drop further, it would reach OPEC’s cost line (45 USD) and also fall well below Trump’s “comfortable” oil price level (64 USD), at which point it may become difficult for oil to keep falling deeply.

The key is OPEC’s production plan for next year, which should become clear in early January. For now, it is not appropriate to buy the dip; instead, one can buy put options to capture short-term fluctuations, keeping position size small.

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