Trade The Journey

Trade The Journey

Trade Review: Week of October 22

Asset: DIA (Dow Jones ETF)

Strategy: Vertical Call

Leg 1: Buy a $339 call

Leg 2: Sell a $343 call

Expiration Date: 10/27/2023

Premium Paid: $2.10

Profit/Loss: (1.30)

Hypothesis: Markets could go higher if the economic report and earnings come in better. FV (0.66)

Hypothesis Overview:

Initially, I anticipated that the Dow would continue its upward momentum, breaking through the resistance offered by the 200-day Simple Moving Average (SMA). While the Dow did experience a retreat, it fared better compared to other indices, suggesting it had a stronger potential for recovery from recent losses. The economic reports scheduled for the trading week indicated a moderating economy, although I expected it would take some time for yields to reach the 5% mark, despite being a major concern.

Considering the downward revisions in earnings forecasts, my belief was that most companies wouldn’t report significant changes in their conditions.

Trade Management:

This trade began with some uncertainty. Alongside the hypothesis, I assessed the fair value of the vertical call to avoid overpaying for the position. Determining the precise options value can be challenging, influenced by factors such as demand, supply, and volatility. My aim was to get as close to the fair value as possible.

As the Dow approached the 200 SMA, Treasury yields began inching closer to the 5% threshold, prompted by a positive retail sales report, improved industrial production, and strong initial claims figures, indicating a robust labor market. The ongoing Israel-Hamas conflict added an additional layer of uncertainty. Despite these factors, the DIA (SPDR Dow Jones Industrial Average ETF) struggled to breach the 200 SMA and spent the remainder of the week in retreat.

Regrettably, I failed to exit the trade at the opportune moment and waited for a recovery that never materialized. As a result, 40% of the options’ value was lost in a single day.

Trade Review:

My frustration with this trade grew as I found myself repeating execution errors from the past. I hesitated to exit the trade promptly and paid the price for this indecision. There’s often the lingering thought of exiting a trade before it deteriorates further, but more often than not, the trade fails to recover and instead continues to decline.

One potential adjustment I could make is to base my entry and exit decisions on technical patterns, in addition to considering fair value. Given the short duration of my trades, technical patterns should play a significant role in my decision-making process. The losses incurred in this trade essentially wiped out the profits from the previous one, returning them to the market.

Upon closing this trade, I contemplated giving up trading and redirecting my efforts elsewhere. However, it may be premature to abandon trading entirely, as success may hinge on making a few key adjustments. I recall nearly abandoning my weight loss efforts after years of minimal progress, but a few adjustments to my diet yielded significant results. It almost seemed like the weight loss occured overnight.

I intend to persevere with trading, as I believe that a few refinements may be all that’s needed to become a consistently profitable trader. One aspect of life I’m learning is that good things sometimes take time to materialize and sometimes your only option is to keep going. 

Trader Journal:

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