Predictions for Friday, October 14th 2022

Quick summary:

• Markets expected to continue going down this week following the CPI
  report on Thursday

• Trading SPY at 350/351 to 363/364 (separate legs!) and SPY put
  at 363

• Trading DIA at 284/285 to 295/296 (separate legs!) and DIA put
  at 295

• Portfolio positioning: same direction for long-shorts, macro remains
  short with hedges (see below)

• Watch this tutorial video to see how we trade this and how to
  interpret our predictions:

*NOTE: Instead of the usual condors we bought one leg at a time. In the video, this simply means we first trade the bear call spread, and then the bull put spread, with individual stop-losses on each.

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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, October 14th, 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:

This week it’s all about the CPI report that came out today. Our prediction was that we expected inflation overshooting the consensus and the markets reacting to the downside. In case of undershooting the consensus, the markets were expected to rally.

Either way, the expected directional move is large this week, so it made sense to trade separate legs of the condor - a bull put spread and a bear call spread. Why? Because the anticipated reaction is likely to penetrate either sides of the condor, so we wanted additional protection where we only kill one leg of the condor with a stop loss and let the other one run. Given that our directional prediction is for the markets to go down, additional puts were bought, so that our overall strategy is still positioned to the downside.

How did we trade this?

Once again, to remind you of our portfolio approach from now on, our portfolio size is $50,720 (calibrated with respect to last week’s results), meaning that our options positions are now higher, but still make up only 10% of the portfolio (a maximum of $5072 exposure).

As per our predictions, this week we're trading 350/351 14/10 bull put spread for $875 and 363/364 14/10 bear call spread for $975 premium (25 contracts). The stop loss, i.e. the buy-back is at $1400 for the first and $1500 for the second (max loss is $1050).

We are buying a put position, 2 SPY 363 14/10 put at $7.7 for which the stop limit is at $3.5.

For DIA we are trading 284/285 bull put spread for $400 and 295/296 bear call spread for $850 premium (25 contracts). The stop loss, i.e. the buy-back is at $650 for the first and $1300 for the second (max loss is $700).

The stop loss, i.e. the buy-back is at $1690, if the condor breaks. We are also buying 2 DIA 14/10 295 puts for $4.72. Stop limit is at $2.3.

For the other part of the portfolio, $20,288 (40%) is allocated towards long-short positions in the following:

• SPY long/short: sold $6340 worth of SPY shares (at $359.8 per share)

• DIA long/short: sold $6340 worth of DIA shares (at $293.6 per share)

• UVXY long/short: bought $7608 worth of UVXY shares (at $13.2 per share)

Macro positioning: Short $10.1k in SPY and $10.1k in QQQ (no change in position). Plus the usual hedges ($1000 for each Jan 20% OTM call).

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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