Trade The Journey

Trade The Journey

Trading Review: Week of April 28th

Trading Asset:

SPY (S&P 500 ETF)

Strategy: Vertical Spread

1ST Spread (SPY)

Leg 1: Buy $499 Put

Leg 2: Sell $493 Put

Premium: $6.90

Profit/Loss: ($6.82)

Total Premium: (6.82)

Hypothesis: The bull run might be over or scaling back. With tech earnings this week there should be a lot of volatility.

Hypothesis Overview: Recent trends show an uptick in inflation, heightened market volatility, and rising yields, indicating a reduced likelihood of a Federal Reserve rate cut. Market indices have shown some weakening, casting doubt on the sustainability of the AI-driven rally that pushed them to record highs, particularly as earnings reports roll in. Predicting the peak of this trend remains a formidable challenge.

Trade Management: Coming off a substantial loss the previous week, I approached this trade cautiously. Timing in trading, especially in the volatile options market, is crucial due to the erosion of time value as expiration approaches. This particular trade was pegged to expectations of slowing GDP and higher inflation indications from the PCE report. Initially, the trade showed promise as the SPY dipped below $500 following a sharp market sell-off.

However, this trade turned against me quickly. Meta’s forward guidance proved to be too much for the bulls and SPY fell on the open. It fell hard and for a few minutes I had a $0.04 profit, but it wouldn’t last. Bulls stepped in after the open and just like that, I was near losing the entire premium. I believe SPY rallied from a low of $497 to a high of $507. Post-market, Google and Microsoft had stellar earning releases and forward guidance that kept AI bulls energized. At this point, the trade was closed.

Trading Review: The market’s unpredictability was once again on full display, contradicting my anticipations of a downturn. I had the opportunity to exit the trade at break-even but chose to hold, expecting market conditions to deteriorate based on the broader economic indicators from the GDP report. The PCE report, however, brought calm to the markets by aligning closely with inflation forecasts, undermining my trade strategy.

This experience highlighted my ongoing struggle with closing out losing positions in a timely manner. Moving forward, I plan to focus on improving my trading strategies through paper trading this weekend, contemplating whether to reduce my trading size or take a break to refine my approach. Despite the setback, my passion for trading persists, although the recent losses have been disheartening.


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