Predictions for Friday, February 4th 2022

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Our weekly predictions are here, available exclusively to our subscribers (competition participants get it a day and a half earlier if they leave their email), for Friday, February 4th 2022 (4pm EST; at market close). Keep in mind that our accuracy is much better for low volatility assets, so interpret the predictions with caution. For an overview of our accuracy thus far, see here.

Our estimate for the Friday close for our 5 major indicators and 2 stocks this week is the following:

As you can see, our predictions are again bullish for the week, anticipating a second consecutive positive week this year. Last week we predicted the rebound, which started in the final hours of Friday. Yesterday’s continued rally suggested a move in the same direction, but the disappointing earnings from $FB and $PYPL are causing strains on the market today. We will probably end up higher tomorrow than the Tuesday open, but perhaps not as high as we’ve anticipated given yesterday’s data.

In terms of our options position, we did the usual iron condor strategy and sold 10 SPY 04/02 contracts at 452/453 to 462/463, for an immediate gain of $480 (10 contracts * 0.48 price * 100 shares). See the screenshot below (showing our temporary profits for Wednesday).

Therefore, we lose money (a max of $520) if SPY breaks above 463, or falls below 452. In other words if it breaks the 1.5% confidence intervals around our prediction.

As always, we run hedges. The upward hedge is covered by buying two SPY 04/02 calls at 450 strike (costs us $1198 - price of single contract was $5.99, as you can see above). This means if SPY breaks 463 on Friday we get over $1000 profit from the call hedge, and lose $520 from the iron condor. If it ends up around our target of 448, we get to keep the $480 from the iron condor and gain an additional $400 from the call.

But, if markets go down and break the 452 lower boundary, we lose both from the call and the iron condor. Our maximum exposure is therefore $1198 + $520 = $1,718 (max potential loss). However, to cut this in half, we apply a stop-loss order when the losses on our positions hit 50%. There is also a risk here that the market might move too fast for us to be filled on the optimal price while going down, but we are certainly not exposed to the full $1,700.

To sum up, the expected gain here is $880 if we hit the target, around $600+ if SPY overshoots. The expected loss is around $850 if the market dips.

Finally, we also bought one AAPL 04/02 call at 167.5 strike for $768. This one probably won’t pull off what it did last week, but a profit of around $200 to $300 is expected. The losses here are also limited.

DISCLAIMER: This prediction survey is still in its testing phase. Neither the survey nor its results act as investment advice of any kind, nor should they be considered as such. The results of the survey need not correspond to actual market preferences or trends, so they should be interpreted with caution. Oraclum bears no responsibility for your investment choices based on these predictions.

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