NVDA Is More Valuable than Canada!
What is the market pricing for the election?
Hello Pulsers,
Thank you for tuning in to another weekly pulse. This week’s newsletter will discuss the week’s key events: the Fed’s interest rate decision and the election. We will also examine what the options market is pricing in and what trades could prevail.
Today’s market is more vulnerable than ever, with high valuation and concentration on just a few names. NVDA 0.00%↑ is currently more valuable than the whole stock market of my home country, Canada. The UK and French stock markets are also less valuable than $NVDA. Is AI that much of a life-changing technology to demand such a high premium? Only time can tell.
But with such a high valuation and significant concentration in just a few names, how promising is the S&P500 looking?
Interestingly enough, Goldman Sachs released a highly accurate model last week that predicts the future returns of the markets based on a series of variables such as rates, unemployment, and the concentration of the biggest companies in the S&P. This model is now predicting real returns closer to 3%, which means a nominal return of 5% assuming a 2% inflation rate.
On Markets
First, let’s examine what the market is pricing regarding movement and volatility this week.
Looking at the At The Money Straddle for the S&P 500, we can see that a ~$15 move is being priced in for the week. But what does this mean?
As shown in the graph below, the at the money put is selling for $7.44, while the at the money call is going for $7.18. That means that the expected move is $14.62.
With a 65% confidence interval, we should expect the SPY 0.00%↑ to land somewhere between $587 and $550 on the week.
As shown in the chart below, the shaded blue area shows where SPY 0.00%↑ could land with a 68% probability.
Of course, outside moves could very well happen, but the market generally expects a 2.6% move, which is twice the average of weekly SPY 0.00%↑ moves.
If you are curious about how I calculate the expected move or how I get the following data, you can check out Interactive Brokers. They are one of the most equipped platforms for active traders. Check them out here:
Assume the Position
I am going into this week flat, watching how things unfold with the election and the Fed. I have talked about what Trump's second term could mean for the market and what trades could pan out.
If you would like to check out the previous publication on the trump trade, you can find it here:
If you have not already, make sure to subscribe and share my publication with your friends.
Last Words
As many of you have seen, most of the charts and analyses I use are from interactive brokers. Interactive Brokers provides some of the best commission structures, yields on idle cash, and, more importantly, one of the best tools for active trading. As an active options trader, I can only imagine myself trading with the tools that they have provided.
If you are still deciding, check out their free simulator and everything else they provide to help you get started.
Below are the links to help you get started.
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Disclaimer
The opinions provided in this newsletter are mine and mine only and do not represent any firm or other affiliation.
You understand that NO content published and discussed during this newsletter constitutes a recommendation that any particular investment, security, portfolio of securities, transaction or investment strategy is suitable for any specific person.
You further understand that I will NOT advise you personally concerning the nature, potential, value or suitability of any particular investment, security, portfolio of securities, transaction, investment strategy or other matter.
This presentation and the content provided are for educational purposes only.