Trade The Journey

Trade The Journey

Trade Review: 09-17-23

Trade Asset : IWM

Trade Strategy: Vertical Call spread – Bearish

Trade Premium Paid: $1.60/$1.54

Trade Premium Recieved: $0.80/

Trade Expiration: 09-15-2023 (One Week)

Trade Hypothesis: Another CPI Play, if the Russell can form a support level, it may rise after a positive inflaiton report. Could fall heavy if infation is higher than expected. 

Profit/Loss: -0.74

Trades:

Leg 1: Buy Put/Leg 2: Sell Put

First Trade: $185/$182

Second Trade: $184/$182

Trade Review: 

My original plan was to place a bull call vertical spread, believing that inflation would continue to trend down and market participants would percieve the report as further evidence of a soft-landing. Before placing the trade and before the market open, I read an article on Bloomberg that changed my forecast.

The article stated that inflation could surprise to the upside. I decided to reverse my original position from a bullish trade to a bearish trade. I believed that inflation would come in higher due to higher crude oil prices. 

The trade started to earn a profit as the inflation report moved closer. The first day closed with a small profit and I began to think about closing the trade. However, I wanted to recieve a higher premium for the trade so I remained in the trade. As the trade jumped around, I thought it best to put a stop on the trade. 

Unfortunately, I wasn’t looking close at the trade and placed a closed order below the current and premium price and the trade closed immediately. I earned a two dollar profit on a trade that would have likely doubled my profits had I stayed in the position. The app I was using to trade, doesn’t have stops for options and I learned a lesson about the app and trade management.

First, I learned that I didn’t have a set stop predefined before the trade. Essentially, I was winging the trade which left me open to trading errors. As I looked at IWM as it continued to fall, I felt a strong urge to reenter the market. I knew that reentering the market would be a huge mistake and initially I decided against it.

As the minutes ticked by and IWM continue tick lower, I decided to go against my trading rule and past experiences and open a new position. The position showed a small profit upon it but turned into a loser. The CPI report showed that inflation continued to moderate although it rose month over month due to higher crude/gas prices. The market overlooked the impact of higher crude prices and the indices trended up.

At the close, I incurred a loss of close to 75% of my inital premium. I held my emotions in check and thought about a excerpt from the market wizards book. During an interview, A trader mentioned that if he knew it was a losing trade, he’d keep his composure and wait for a price to exit the trade that was suitable to him.

So I waited and luckily the market moved lower the following day. I was able to exit the trade with a more manageable loss. Sometimes its challenging to know when the market is falling or choppy but with experience comes clarity.  Patience is an essential element of trading and what has helped me develop patience in the market is knowing that losing my entire premium is manageable. Of course, I don’t plan on losing my entire premium, however having enough money in my trading account to weather a loss allow me to be a more creative and patient trader.

Lesson: 

  • Always define the loss you are comfortable taking before placing the trade. 
  • Patience is a key component of successful trading.
  • Put loss behind you as soon as you document it.

Trading Journal :

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