Your Financial News Roundup
June 21, 2023
TL;DR
1. Economy: JPow and his Fed buddies are feeling good about nailing the “soft landing”; while the world’s central banks take different monetary approaches.
2. Tech: Clop, a Russian hacking group, hacked into U.S. agencies and firms; and Hyundai is considering aligning with Tesla’s charging standard, joining Rivian, GM, and Ford.
3. World: U.S. Secretary of State Anthony Blinken traveled to China to thaw tensions; meanwhile a designer created a double-decker seating for planes to increase passenger capacity.
Personal Finance Concept [Part 8/8]: Options Trading
Economy
💢 To JPow’s Frustration: Though the Fed did not raise rates last week, it signaled that 2 more hikes may be necessary. But, it is surprisingly optimistic that a recession can be avoided. Officials predict unemployment will not rise sharply and growth will be around 1%. And it’s all thanks to Federal Reserve Chair Jerome Powell’s sworn enemy: America’s cooling job market, which will provide a cushion for a soft landing and avoid major job losses. (POLITICO)
Our Take: While the Fed is feeling rosy, just remember it often has a bit too much confidence when it looks at itself in the mirror. Since 2020, the Fed has made a few mistakes, mainly by printing $1T+, which added to inflation. The cries of recession have been happening for 18+ months, but it’s possible that a slow-moving economic downtrend is already in play.
🤷🏽♂️ A Difference of Opinion: The world’s central banks typically act in unison, but have recently diverged. Last week, the European Central Bank increased rates and forecasted worsening inflation, while the U.S. Federal Reserve paused rate hikes. In contrast, China’s central bank cut its rates and Japan left its ultra-low rates intact. This difference is unusual as the global economy is now made up of different rate cycles — reflecting the fact that each central bank is tending to its own country’s needs. (CNBC)
Our Take: From trade wars to supply chains and now central banking, it appears that the world’s major economies are decoupling, pushing the trend toward further regionalization. A post-Covid world looks to restore supply chains and make monetary policy more individualized, leading to a less globalized economy.
Tech
👾 Hackers Amok: Last week, CISA, the government’s cyber agency, confirmed that several U.S. federal agencies were hit by cyberattacks. The hackers exploited a weakness in the enterprise file transfer tool, MOVEit Transfer, to hack into these agencies. Russia-linked hacker group, Clop, claims to have carried out the hack on its website. The exact number of agencies affected is not publicly known, but CISA assures that the attack did not compromise any sensitive information. (TechCrunch)
Our Take: Commonly used against companies, ransomware makes a system inaccessible to its owner unless the owner meets the hacker’s demands. Often kept secret, the new “Cold War” is a cyber war as global powers hack one another amid rising tensions.
🔌 Establishing Dominance: Korean car maker, Hyundai Motors, is considering making its vehicles compatible with Tesla’s North American Charging Standard (NACS). Ford and General Motors have already agreed to use NACS back in May. Hyundai will work with Tesla to ensure that their chargers can support the higher voltage needs of their EVs before deciding. Tesla had to open up its charger network to receive $7.5B in federal subsidies. (Reuters)
Our Take: Since the Ford deal was announced, Tesla’s stock price has gone up 40%+, a welcome relief for Tesla investors. As Tesla’s prominence in the E.V. world grows, it benefits all players, but none more than itself as its charger network is now a critical part of the E.V. transition.
World
❤️ Better BFFs: Secretary of State Anthony Blinken’s trip to China is the first by a U.S. official in 5 years. Blinken held “candid” talks with his Chinese counterpart, Qin Gang, at the start of his tour. They committed to stabilizing the U.S.-China relationship by making it more predictable and positive, with Qin promising to visit the U.S. later this year. Qin positioned Taiwan as the biggest risk for the 2 superpowers as part of China’s core interests. Both nations made clear there wouldn’t be major breakthroughs in this meeting. (BBC)
Our Take: Blinken’s trip to China was supposed to happen earlier, but was cancelled over the Chinese spy balloon incident. War, trade, and military posturing have made the working relationship between the 2 nations tense, to say the least.
✈️ Your Worst Flight Nightmare: Designer Alejandro Vicente unveiled a double-decker passenger cabin that allows airlines to fly more passengers while lowering ticket costs. This ‘Chaise Lounge’ design would replace the middle row of a large aircraft like a Boeing 777. These seats trade off digital entertainment systems for comfort, as the legroom accommodates a 6’2 person and the upper seats have extra reclining room. Branded as the new economy seat, Vicente is working with air regulators to get approval. (GNN)
Our Take: The concept of standing seats and double-decker seats have been around for many years, but have never taken off. Critics cite accessibility, health, comfort, and safety concerns, with angry TikTokers going so far as to call the design claustrophobic and predicting that passengers above would pass gas to those below.
Finance Concept of the Week
The Investor’s Playbook [Part 8/8]: Options Trading
Investment Strategies for Financial Success
Options trading involves buying and selling options contracts. An option is a derivative contract that gives the holder the right, but not the obligation, to buy or sell an underlying asset (such as stocks, commodities, or currencies) at a predetermined price within a specific time.
There are 2 types of options: calls and puts. A call option gives the holder the right to buy the underlying asset at a specified price (aka strike price) before the option’s expiration date. On the other hand, a put option gives the holder the right to sell the underlying asset at the strike price before the expiration date.
Pros
- Potential for Higher Returns: Because options trading involves leverage, that can provide an opportunity for significant returns using a small amount of money.
- Risk Management: Options can be used as a risk management tool to protect against potential losses. By using options to hedge a portfolio, you can limit downside risk and protect your investments in volatile markets.
- Flexibility: Options provide traders with a wide range of strategies and approaches. You can take advantage of various options strategies, such as buying calls or puts, selling covered calls, or engaging in complex options spreads.
- Profit Potential in Any Market Condition: Unlike traditional stock trading, where profits are often highly dependent on the market cycle, you can profit in both rising and falling markets. Depending on your expectations, you can take bullish or bearish positions using options.
Cons
- Complexity: Options trading can be highly complex and requires a good understanding of option pricing, Greeks (such as delta, gamma, theta, etc.), and various strategies.
- Risk of Losing the Premium: When buying options, if the anticipated price movement does not occur within the specified time frame, the option may expire worthless. That may result in a loss of the premium paid.
- Time Decay: Options have an expiration date, and their value erodes over time due to time decay (theta). If you are wrong about the anticipated price movement, the time decay can erode the option’s value, leading to losses even if the asset’s price remains unchanged.
- Volatility Risks: Sharp and unexpected price movements can increase volatility and impact the value of options contracts. High volatility can lead to wider bid-ask spreads and increase the cost of trading options.
- Unlimited Liability: If you sell naked calls (aka short calls), that can result in unlimited loss potential. If the price of the underlying asset rises significantly, you may be forced to buy the asset at a higher market price to fulfill your obligation, resulting in substantial losses.
Tips and Tricks
- There are several levels of options trading:
- Level 1 includes covered calls and protected puts, which means you already own the underlying asset.
- Level 2 involves long calls and puts, including straddles and strangles.
- Level 3 includes options spreads, which involves buying 1+ options and selling 1+ different options of the same underlying asset simultaneously.
- Level 4 involves selling naked options.
- Before trading options, do some research into how options work and different strategies to use. You can find free, high-quality resources online through a brokerage like Fidelity or Charles Schwab or on YouTube.
- Most brokerages offer options trading, though you may need to apply and get approved first. Once approved, you can use an option chain to trade options and place limit or market orders. Note that there may be fees or commissions involved, which is typically a fee-per-trade plus a commission per contract.
Best For
Options trading is best for experienced traders who have a good understanding of the underlying assets and the market. Due to the inherent volatility and uncertainty associated with options trading, investors need to have a high risk tolerance and strong intuition with the market pulse to trade options successfully.
Tip of the Week
💸 You don’t always have to spend money to make memories. Activities like game nights, sports watching parties, movie nights, potluck dinners, campouts, and pick-up sports are all ways you can create unforgettable experiences at a low cost.
#Oof
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