Trade The Journey

Trade The Journey

Trade Review: Week of Febuary 4th

Trade Asset: SPY (S&P 500 ETF)

Trade Strategy: Vertical Call

Trade Expiration: 2/02/2024

Trade Leg 1: Buy $488 call

Trade Leg 2: Sell $490 call

Premium: $6.32

Profit/Loss: $2.78

Hypothesis: I could catch the run up before the major earnings are released and the Fed funds rate announcement occurs.

Hypothesis Explained:

 The SPY appeared primed to reach unprecedented heights, buoyed by a robust trend. With the market showing strength amid expectations of a March rate cut and a resilient economy, it seemed poised for further gains. The anticipation was that weakening job growth could signal a shift in monetary policy, a prospect further underscored by the upcoming Federal Reserve press conference, which was hoped to clarify the likelihood of such a shift.

Regarding the vertical spread’s width, my caution stemmed from a lack of strong bullish conviction and uncertainty about the Federal Reserve’s guidance aligning with market expectations. Additionally, with SPY venturing into uncharted territory and significant earnings reports on the horizon for major tech firms, I opted for a more conservative spread while increasing my options volume. Despite higher premiums due to SPY’s upward trajectory, I proceeded with the trade.

Trade Management:

The goal was to quickly secure gains to mitigate previous losses, aiming for an additional $300-$400 to offset a significant $700 loss incurred earlier. Given the impending economic reports and earnings announcements, I recognized the complexity of this trading window. The trade’s outset was marked by volatility, with underwhelming performances from Google and Microsoft and indicators suggesting a slowdown in job growth. These factors contributed to SPY’s dip, maintaining it near a critical reference point until remarks from the Federal Reserve ruled out a March rate cut, leading to a considerable drop.

Despite facing a $250 loss, I chose to maintain my position, betting on a rebound following an oversold market reaction and an upcoming employment report. The report’s positive job gains fueled a market rally, enabling a profitable exit from the trade. After securing a profit, the temptation to re-enter was strong, especially as SPY continued its ascent, eventually leading to a minor loss upon exit during a market pullback.

Trade Reflection:

This experience underscored the nuanced challenges of trading amidst a flurry of economic data and tech earnings. Initially aimed at capitalizing on pre-Federal Reserve conference volatility, the trade’s minor early profit highlighted the invaluable role of experience in navigating market dynamics. Despite initial setbacks post-conference, the market’s resilience and unexpected reactions to job growth data illustrated the unpredictable nature of trading. This journey has reinforced the importance of reference levels and the insights gleaned from tick charts, which offer a unique perspective on market activity.

Trading remains an intricate endeavor, with reference levels providing guidance yet no certainty. The discipline to exit trades as planned remains my most significant challenge, a lesson in the value of perspective and the futility of hindsight regret.

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