To The Moon

The impact of the bridge bombing was less than I expected, but the rising tensions between the two countries are always a concern, and I think it's good to have insurance. $VIX 20230322 150.0 CALL$

Then there is the CPI this Thursday, not much to say, core CPI is definitely still very strong. So if the market is up the first three days, it's definitely down after Thursday's data, and if it's down, it might bounce back.

Earnings expectations basically maintain a negative view, mainly bearish. Low open high or low open low to follow the main market.

First up this week is bank earnings:

Bank results are expected to show a fall in net profits as market turmoil damps investment banking activity and banks set aside more emergency funds to cover losses from borrowers defaulting on repayments.

Analysts expect $JPMorgan Chase(JPM)$ to report a 24% drop in profit, while $Citigroup(C)$ and $Wells Fargo(WFC)$ are expected to report a 32% and 17% drop, respectively, according to Refinitiv data.

$Morgan Stanley(MS)$ is also expected to report a 28 per cent drop in profits, while rival $Goldman Sachs(GS)$ is expected to report a sharp 46 per cent drop as corporate appetite for mergers and ipos wanes;

$Bank of America(BAC)$ Q3 profit is expected to decline nearly 14%, with strong growth expected in its consumer division to partially offset a decline in advisory fees.

Under such expectations, put spreads are used to put banks.

MS:

• buy $MS 20221021 77.0 PUT$
• sell $MS 20221021 70.0 PUT$​

C：

• buy $C 20221021 42.0 PUT$
• sell $C 20221014 38.0 PUT$

JPM：

• buy $JPM 20221021 105.0 PUT$
• sell $JPM 20221021 99.0 PUT$

What is a put spread:

A bear spread consists of a buy leg and a sell leg of different strikes for the same expiration and same underlying contract. This strategy will pay off in a falling market, also known as a bear market, that is why it is referred to as a bear spread.

Bear spreads can be constructed from either going long a put spread or short a call spread.

Put Bear Spreads

A trader believes that the market will have a moderate drop before the options expire. If the underlying market was trading at 100, he would buy a 95 put for $3 and sell the 90 put for $2.

By selling the 90 put, he receives a premium which offsets the cost of the 95 leg. The total cost of the spread is $1. The breakeven point for the spread is 94: the 95 strike minus the cost of the spread.

The best-case scenario is if the market finishes at or below 90. Because the 95-90 put spread will pay off $5. This is the maximum payoff for the spread, regardless where the underlying finishes. If we subtract the $1 cost of the spread, the total profit for the trade will be $4

Assume the underlying finished at 87. The 95 put will pay the trader $8, but he will need to payout $3 on the 90 put. If the market finishes at 70, the 95 put will pay the trader $25, but he will need to payout $20 on the 90 put.

The worst-case scenario is if the market finishes at or above 95. Because both the 95 and 90 put expire out-of-the-money and are therefore worthless. So, the trader loses the full cost of the spread, $1. If the trader purchased only the 95 put at $3, his loss would be $3 versus $1.

If the underlying finishes at 92.5, the long 95 put will be worth $2.50 and the short 90 put expires worthless. The trader’s payout of $2.50 minus the $1 cost of the spread gives him $1.50 profit.

If the trader bought only the 95 put, his payout would still be $2.50, but that is less than the $3 he would have paid for the 95 put alone.