Trade The Journey

Trade The Journey

Practice Makes You Better

Top of the Morning! After waking up early all week, it’s tough continuing to do so on the weekends. During the week, I have to wake-up early and on time to make it to work on time. I usually hop out of bed as soon as the alarm rings.

From experience, I’ve learned that hitting the snooze pattern is a recipe for disaster – either I’m rushing to work or late for work when I snooze my alarm.

I try to wake up early on the weekends because most people aren’t up and on the roads or at the store. One of the contributing factors to me arising early is the continuing pursuit of my goals.  If I can wake up early, be on time and be ready to work hard for someone else, I can do the same for myself. Each day is a step forward towards my destination, market mastery.

The eagerly awaited employment report came in with mixed reviews. While the unemployment lowered, the number of jobs added disappointed. “The US economy added a meager 194K jobs in September of 2021, the lowest so far this year and well below forecasts of 500K.”

 

Most believe the Fed will continue with its plan to taper towards the latter part of the year. The September jobs report was the barometer most assumed the Fed would be most interested. With supply chains still strained and prices increasing, the Market believes that inflation may not be transitory.

Since February, the Russell 2000 has been in a sideways trend, and not much changed this past week. The S&P 500 halted its downward trend from the previous week, slightly rebounding. It remained below the 50 SMA and lost a little steam as it approached the 50 SMA.

The Dow Jones remained below the 50 SMA but rose above my support/resistance level of 34519.51. A long-legged Doji capped off the week, an indecision candle highlights the fight between the bears and bulls. 33847.7 could serve as a support line, which would mean the Dow Jones has been in a sideways trend since May.

The Nasdaq is well below the 50 SMA and looks like it will trend further downward to test the 200 SMA. It has also been trending sideways between 14216.02 and 14948.32.

Volatility on all of the indexes retreated. One contributing factor could be the agreement reached to increase the debt ceiling limit to December when another decision needs to be made. The US was at risk of defaulting on its interest payments, among other potential calamities.

Volatility charts not posted. Symbols used: VIX (S&P 500), VXD (Dow Jones), and VXN (Nasdaq)

Russell 2000

S&P500

Dow Jones

Nasdaq

There will be a fight in December, and it seems like the debate between parties will intensify. There was talk of releasing oil from the reserves to slow the rising gas prices in the US, but it did not come to fruition. Around the world, there is a looming energy crisis.

Some countries are facing rolling blackouts and energy rationing. Bitcoin resumed its trend upward, where $59,176 could be a future test. There’s some congestion beginning at the $54,141 level and extending towards the $59,176. I won’t delve into the other cryptocurrencies because Bitcoin is a good barometer of sentiment.

Yields on the five, ten, and thirty-year bonds all rose steeply during the week. Some analysts forecast crude reaching $100 barrel, and judging by the charts; I wouldn’t say that’s an impossibility.

With costs increasing in almost every sector of the economy, will consumers continue to spend in the upcoming holiday season?

As the indices take a breather from the continued uptrend we’ve been in, is the dreaded pullback coming sooner rather than later?

While the economy is more robust as it emerges from the Pandemic, growth is steadying. I look forward to the fourth-quarter earnings reports.


Practice makes you Better

The above charts display AXP and the S&P consumer Finance Sector.

Since last weeks’ option lost, I decided it’d be best to practice strategies and journal keeping. A couple of weeks ago, I decided to create a spreadsheet that tracked indices performance, portfolio performance, and a journal of all my trades.

The system has been working quite well. I get to see how the greeks move as the price and volatility change. There are so many moving parts involved in options trading.

Initially, I was profitable about 50% of the time, which I attribute to beginners’ luck. As you learn more, there’s more to consider when managing a position.

I continued to monitor AXP and decided to place a practice trade using a bull put spread. A bull put spread involves selling the put at a higher price and buying the put at a lower price.

In my haste to trade the previous week, I completely missed that AXP was nearing an all-time high. Placing a bearish trade near an all-time high means your trying to call the top, and that’s always a bad idea. Tops and bottoms are tough to trade profitably with any consistency.

The options position retained most of its value, as AXP remained close to my level of $174.12. One important point to remember is that trend lines, support, and resistance lines are primarily subjective. My reference levels may not be the same as yours.

In a credit spread, I need the underlying price to stay above the put option I sold.

I sold the $172.5 put and brought the $170 put for downside protection. I received a credit of 90 cents. As long as the position stays above $173.40, I will remain in a profitable place. Theta is on my side in this position, meaning that I’ll earn a time premium for each day I am in the position.

At the moment, my profit would stand at 56 cents. Vega and Gamma could hurt the credit spread.

I’m still working on incorporating the Black-Scholes formula into my options trading. The credit spread lost 34 cents in value.

If you looked at the closing price of AXP at the end of the week at $175.15 and subtracted it from my breakeven, you would see a $1.75 difference. Yet my spread lost value.

According to my spreadsheet, the $172.5 put was at-the-money, while the $170 was a little further from the at-the-money. The charts show that the Consumer Finance sector is stalling at the top.

While in the trade, a dividend was issued last Thursday. Stocks usually fall by the dividend amount and puts become more expensive. Below is a picture of my journal detailing the credit spread position for the previous week.

It would have been best to close this position last week.

I still have a lot to learn about options trading.


Cash-flow this Past week:

I kept firm on my spending plan. With extensive dental procedures upcoming, I’m trying to save most of my discretionary income. I’m attempting to avoid withdrawing from my investment and trading accounts.

I hate taking money from myself, but sometimes I have to. This coming week, I will continue spending within limits.

Grade: C

Reason: Consistency

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