Oct'23 - Reflections and Results

Reflections

October was one of my favorite months given the uptick of Earnings Reports across several esteemed companies. We executed and closed a total of 10 option trades placed upon famous tech firms like $NFLX, $TSLA, $GOOG, $MSFT and $META.

One of the geopolitical topics which trended was the war happening between Israel and Hamas. I am not the kind of person who follows news on war specifically very closely.

So, How I came to know about this news?

I placed a trade on $LMT Lockheed Martin and saw the stock price move drastically much earlier than my expected time frame. Booked a nice profit there unexpectedly early but the point is, when war is imminent, the market prices in on how well a company can capitalize and profit off the event. $LMT being an aerospace defense company naturally saw a price surge upwards. That led to me reading up more about the catalyst for this surge in stock price and eventually finding out about the war which was happening in the Middle East.

This is one of the reasons why I enjoy dabbling in the markets. I get first hand leading indicators on some of the higher probability outcomes of events which are most likely to emerge in the near future.

Back in 2022 when I bought my first real estate... the stock market, and by extension linking to the FED / 10 Year Treasury Yields / Interest Rates, gave me concrete data points both historic and predictive to finalize my decision to take on the risk (and now reward) of locking in my mortgage loan at a fixed Interest Rate of 1.35% over the next 3 years, with the flexibility for re-financing or continuing a floating interest rate from year 4 onwards. Fixed Mortgage Loan Interest Rates have now 3X to 3.7% to 4.0% range.

Chart illustrating the U.S. 10Y Treasury at my entry point (circled) and trending up thereafter

To put things into perspective, I ran some numbers in my mortgage calculator.

Scenario 1: Rate @ 1.35%

Scenario 2: Rate @ 3.75%

Comparing Scenarios 1 and 2, assuming a loan principle of $500,000 --

In summary:

-- Monthly payments are 30% lesser ($2,570 vs $1,965)

-- Total Interest Payments (which you have to pay on top of your principle), assuming you pay till the end of your 25 years payment term is $172,000 lesser.

-- I also considered the scenario of the next 5 years:

-- Figures show $88,000 vs $31,000, which is a $57,000 difference over 5 years and on average $11,400 additional per year.

I attribute my "luck" towards being an active options investor which really gave me a competitive edge in making decisions outside the investing space but is somehow also related.

Plugging in the numbers into a financial model helps you gain much greater visibility of your spending and what kinds of hidden costs you'd slowly incur over the years which avoided your line of sight at the beginning but eventually comes back to erode your financial situation without you knowing.

Case in point, if you loaned $500,000 at 1.35% and 3.75% interest respectively, you'd need to be able to sell away your property at a minimum of $586,000 and $758,000 respectively at the end of your loan term for you to just BREAKEVEN. This is does not even include stuff like transactional costs, agent fees and opportunity costs. Therefore, always adopt a quantitative approach when measuring your financial plans over the 5-10 years horizon.

Results

One minor addition I am exploring stacking on top of my advanced strategy option trades would be doing some simple single-legged long/short calls/puts with contract price not exceeding $300 per contract.