Trade The Journey

Trade The Journey

Trade Review: Week of October 15

Trade Asset: Rusell 2000 ETF (Based Russell 2000)

Trade Expiration: October 16,2023

Trade Strategy: Vertical Put Spread

Leg 1: Buy Put at $177

Leg 2: Sell Put at $172

Premium Paid: $1.15

Profit/Loss: $1.05

Hypothesis: Markets are overextended to the upside. With so many uncertainties, took a chance that it may be turned down.                                      

Hypothesis Explained:

Markets fell sharply based on uncertainty and rising treasury yields. Inflation continues to accelerate although at a markedly slower pace. Most of the indices had retreated, especially the Russell 2000, which is an excellent indicator of risk taking among market participants. I felt that the sharp run up was overextended as there were various challenges impeding the market’s progress. To get ahead of the move down, I would have to predict a top in the recent action.

Trade Management:

Because the Russell rose sharply the week prior, I was able to enter the trade at close to its fair value based on the Option Calculator I used from the Options Council. Patience when entering the trade has always been an issue for me. Had I waited, I could have entered the trade at a discount. The trade was rocky from the start and on the first day of the trade I had a $0.63 loss. I wasn’t sure how the trade would turn out since the market rose on the higher PPI release.

The next day, the CPI rose, and the markets began to turn, especially as treasury yields began to rise.  As yields rose, the indices began to fall and suddenly I was looking at a profit. As a trader, you need to have a short memory to reap the full benefits of a profitable position. Unfortunately, my memory was well intact from the previous trade, and I exited the position.

While the profit was suitable, I could have entered a stop loss a little higher as the market continued to fall. However, you never know what will happen the longer you remain in the trade as you open yourself to uncertainty. Anything can and will happen in the market and sometimes its best to take your profits off the table.

The Review:

This trade went well but I have to say that I didn’t anticipate that the market would fall that sharply. It broke through the $174.63 level with ease and fell through the $171 level the following day. As I continue to trade, I continue to see the importance of thinking strategically. From entry to exit, you must be prepared for the possibilities, good and bad. Every move counts.

Waiting a few minutes to get the best possible price could mean the difference between a losing and winning trade. The same line of thinking could be said of exiting the trade. If we revisit the first day of the trade, had I panicked, I would have narrowly missed a profitable position. Trading is just that delicate.

A lot of sites focus on the trend but what about the story behind the trend. Had I would have been unaware of the economic environment it might have changed the outcome of the trade. There’s also the side to trading, I could have entered the trade haphazardly and found myself in  a profitable trade. This is the nature of trading.

Trade Journal:

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