Predictions for Friday, May 27th 2022
Quick summary:
Slight rebound expected from the Tuesday lows
More important than ever to buy puts as downside hedges
Trading SPY condors at 390/391 to 405/406 and SPY put at 406
Trading DIA condors at 314/315 to 324/325 and DIA put at 325
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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, May 27th 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:
A slight rebound is expected this week following Tuesday’s lows. When we say “slight”, it really means a very small move upwards for DJI and S&P, slightly higher for the 10Y, AAPL and TSLA, and slightly lower for the VIX and BTC.
However, the Fed minutes that came out yesterday suggested at least two more 50bps rate hikes over the next two meetings. It’s a strong commitment from the Fed in their battle against inflation, so it will be interesting to see the immediate market reaction today and tomorrow.
This is why we are urging our readers to keep puts as downside protection (see details below). They were expensive yesterday (and already lost value after a short rally), but necessary coming into the last two days of the week.
How did we trade this?
We traded 10 SPY 27/05 iron condors, ranging from 390/391 to 405/406 for $480 immediate gain.
In addition, we bought one SPY 406 27/05 put for $12.5 per contract. Quite expensive, but necessary. We will close it today if the market continues its rally.
Similar play for DIA 27/05, where we traded the following iron condor: 314/315 to 324/325 (10 contracts) for $440 immediate gain, and one DIA 27/05 put at 325 bought for $8.2.
If the market continues its rally over the next two days, we pocket losses on the puts (we’ll try to contain them within 30-40%), and take the full premium from the iron condors, meaning that we are looking at a small profit of a few hundred dollars for the week. If the rally breaks the upper boundaries, then we have our first negative week in Q2, as both the puts and the condors lose money. And if the markets pulls off another massive sell-off, the profits from the puts will once again deliver large gains for the week.
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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