Trade The Journey

Trade The Journey

Trade Review: Week of November 12

Hypothesis: SPY overbought, and I thought it could show a brief pullback.

Trade Asset: SPY (SPDR S&P 500 ETF)

Trade Strategy: Bearish Put Vertical Spread

Trade 1:  Buy $436 put/ Sell $429 put

Trade 2: Buy $438 put/Sell $433 Put

Trade 1 Premium: $2.35

Trade 2 Premium: $2.00

Trade 1 Profit/Loss: ($1.08)

Trade 2 Profit/Loss: ($0.35)

Hypothesis Explained:

Last week was quite eventful, with reports signaling a potential halt to the Fed’s rate hike cycle. Bond yields retreated from their multi-year highs, and the earnings landscape continued to shine, surpassing expectations. Despite lingering economic uncertainties, companies generally perceive strength in the economy.

Indices experienced a sharp rise as market participants re-entered with enthusiasm. However, this rapid ascent tempted me to consider a bearish outlook. I’m wary that the higher interest rates might trigger challenges, particularly for the consumer, even though they have weathered rate hikes and price increases quite well so far.

As the labor market tightened, higher salaries and job mobility became prevalent. This trend, seen in my personal experience switching jobs twice in the post-Pandemic era, contributed to a significant increase in my income. However, a crucial question arises: Can the majority of Americans weather the storm of rising prices?

According to a Yahoo Finance article, the average U.S. salary is $59,428. Shockingly, 60% of adults live paycheck to paycheck, and only 64% have enough savings to cover a $400 emergency. With pandemic savings dwindling and a decline in credit card usage, signs point towards potentially tough times ahead. The ripple effects of higher credit card, housing, and auto payments could impact the broader economy.

In my assessment, this recent market surge appears to be a dead cat bounce—a short-lived recovery within a downtrend. Unfortunately, my attempt to capitalize on this with well-timed trades did not pan out.

Trade Management Recap:

Admitting a mistimed entry, I chased the first trade, anticipating resistance at $436-$438 for the SPY. The trade, initially in my favor, turned into a significant loss as the SPY continued its upward trajectory. Exiting, I witnessed a momentary drop that could have turned the trade profitable, emphasizing the challenge of predicting short-term market movements.

In a second attempt, I re-entered the trade, this time at the higher resistance level of $438. Despite a lower premium, the trade developed into a loss, exacerbated by a higher market open the next day. Setting a stop mitigated further losses, but it was a reminder of the importance of quick adjustments in the dynamic options market.

Trade Review:

Analyzing the trades, I recognize the need to enhance my timing skills. Improving patience and discipline in entering trades could be key. The impulsive urge to enter without thorough preparation has been a recurring challenge. I acknowledge the complexity of distinguishing between a better and the best entry price.

Reflecting on the trading mantra, “cut your losses and let your profits run,” I realize it’s one of the hardest skills to master. Balancing the intricate dance of when to enter and exit the market requires experience and a keen understanding of price dynamics.

In conclusion, as I fine-tune my forecasting accuracy, refining my timing becomes a priority. Recognizing the importance of patience and disciplined decision-making is crucial, reminding myself that trading is not just a verb—it’s a skill that evolves with experience.

Trade Journal:

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