Trade The Journey

Trade The Journey

Trading Review: Week of April 7th

Trading Asset:

SPY (S&P 500 ETF)

Strategy: Vertical Spread

1ST Spread (SPY)

Leg 1: Buy $22 Call

Leg 2: Sell $526 Call

Premium: $8.95

Profit/Loss: ($8.90)

2nd Position

Strategy: Vertical Spread

2nd Spread

Russell 2000 (IWM ETF)

Leg 1: Buy $204 Call

Leg 2: Sell $210 Call

Premium: $2

Profit/Loss: ($2.45)

2nd Position

Total Premium: ($11.35)

Hypothesis: Jobs data will be somewhat about the same, the SP could at least test for a new high.

Hypothesis Explained: The jobs report would show the labor market coming into better balance. The run up should continue even though it looked to be weakening, why bet against a historic bull run?

Trade Management: The beginning of this trade was tumultuous, with early signs suggesting a potential plateau in the S&P 500’s upward trajectory. Reflecting on past experiences where opposing a solid upward trend resulted in losses to both my portfolio and confidence, I realized the hazards of adhering too closely to a trend at its peak, uncertain of when the downturn might occur. Despite this, the initial shock came with the ISM manufacturing report indicating expansion for the first time after a prolonged period, slightly jolting the market. Although my position dipped, I resolved to hold off any decisions until the employment report was released, given its implications for monetary policy and potential market volatility.

On the third day, following a minor setback, I engaged in two Russell contracts, optimistic about an imminent recovery. True to my expectations, both the S&P 500 and Russell indices bounced back, with Russell notably surging, bolstering my confidence. This elation prompted me to take a lunch break, only to return to a market downturn, significantly diminishing the value of my S&P 500 position, while the Russell somewhat sustained. Unbeknownst to me, a series of Fed speakers that day would pivot market expectations by debating the likelihood of rate cuts, sharply diverging from the anticipated three cuts to possibly none, should inflation persist.

This unexpected turn rendered my trade nearly void, with all hopes pinned on a tepid employment report, which, contrary to expectations, reported a significant job addition, far exceeding forecasts. Unfortunately, the hope never materialized and I lost all of the premium on the S&P ETF options and a larger portion of the premium on the Russell 2000 ETF options.

Trading Review: Each trading week brings new insights, not just about the markets but about my own reactions and strategies. Instances like these remind me of the importance of being prepared for data report uncertainties, a lesson starkly highlighted this week. The unexpected stance of the Fed speakers on rate cuts caught me off guard, a misstep that not only escalated my losses but also negated the potential rescue by the employment report.

This experience reiterates a familiar yet overlooked lesson: the importance of exiting a plummeting market. While past trades have often seen recovery, this instance was a stark deviation. The real takeaway is acknowledging the perennial nature of trading opportunities, a realization that contrasts with my previous belief that the outcome of a single trade could define my trading career. Experience has taught me that success in trading is cumulative, not instantaneous.

It’s clear that I possess the necessary skills; however, the true test of professionalism lies in effective trade management, specifically in recognizing when to mitigate losses. This episode has been a profound learning curve, underscoring the vital strategy of cutting losses early, a principle I’m committed to incorporating in my future trades.

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