Thank you for the question! Yes, 'small caps flexing' can often be judged by IWM outperforming SPY, but as with any signal, it depends on the context. The outperformance of IWM relative to SPY is a strong indicator of increasing risk appetite, which is a key characteristic of the 'golden windows' I described. However, it's not just about relative performance—it's also about the broader market environment and how the indexes and sectors are behaving together.
For example, there are scenarios where all indexes are pushing higher with IWM leading, which is a classic sign of small caps flexing. But there are also times when all indexes are pushing with similar strength, or even when SPY and QQQ are moving sideways while IWM is pushing higher. What do you do in these cases? The answer, of course, depends on the context. Alongside the indexes, you also need to consider how industries and sectors are performing relative to each other, as different periods often see different areas of the market outperforming.
You can go down the rabbit hole a lot if you want to fine-tune this aspect. We do this every week in our Market Monitor article, where we analyze these dynamics to stay on top of market conditions and identify the best windows of opportunity. The key is to look at the bigger picture: the alignment of indexes, sector rotation, and overall market sentiment, rather than relying on any single signal in isolation.
We truly love this aspect of trading and investing, sorry for the long message :)
I didn’t quite get the options price hack, can you ELI5? Maybe show the formula of how to determine that the stock needed a 5 dollar move to break even is it really just the option premium+ADR? Thanks
The formula is just a quick "reality check" to help people assess if their options trade makes basic sense or not. It's absolutely not perfect and doesn't take into consideration many important factors like volatility, market conditions, or special events. Options are complex instruments that require much deeper analysis for proper trading.
Think of it as a simple "sniff test”.
If your trade fails this basic check, it probably needs reconsidering. If it passes, you still need to do proper due diligence before trading. It's just a help to find a fast way to see if the operation you want to do is in the realm of possibility or not.
It’s a useful beginner's tool, but not a complete trading strategy!
Excellent post! One question: In reference to golden windows, should "small caps flexing" be judged by IWM outperforming SPY?
Thank you for the question! Yes, 'small caps flexing' can often be judged by IWM outperforming SPY, but as with any signal, it depends on the context. The outperformance of IWM relative to SPY is a strong indicator of increasing risk appetite, which is a key characteristic of the 'golden windows' I described. However, it's not just about relative performance—it's also about the broader market environment and how the indexes and sectors are behaving together.
For example, there are scenarios where all indexes are pushing higher with IWM leading, which is a classic sign of small caps flexing. But there are also times when all indexes are pushing with similar strength, or even when SPY and QQQ are moving sideways while IWM is pushing higher. What do you do in these cases? The answer, of course, depends on the context. Alongside the indexes, you also need to consider how industries and sectors are performing relative to each other, as different periods often see different areas of the market outperforming.
You can go down the rabbit hole a lot if you want to fine-tune this aspect. We do this every week in our Market Monitor article, where we analyze these dynamics to stay on top of market conditions and identify the best windows of opportunity. The key is to look at the bigger picture: the alignment of indexes, sector rotation, and overall market sentiment, rather than relying on any single signal in isolation.
We truly love this aspect of trading and investing, sorry for the long message :)
Thank you for the detailed insights. Investing involves so many layers of complexity ....
I didn’t quite get the options price hack, can you ELI5? Maybe show the formula of how to determine that the stock needed a 5 dollar move to break even is it really just the option premium+ADR? Thanks
The formula is just a quick "reality check" to help people assess if their options trade makes basic sense or not. It's absolutely not perfect and doesn't take into consideration many important factors like volatility, market conditions, or special events. Options are complex instruments that require much deeper analysis for proper trading.
Think of it as a simple "sniff test”.
If your trade fails this basic check, it probably needs reconsidering. If it passes, you still need to do proper due diligence before trading. It's just a help to find a fast way to see if the operation you want to do is in the realm of possibility or not.
It’s a useful beginner's tool, but not a complete trading strategy!