Trade The Journey

Trade The Journey

Trade Review for Week of 3-09: Calls and Puts

Trading Asset:

SPY (S&P 500 ETF)

Strategy: Vertical Spread

1ST Spread (SPY)

Leg 1: Buy $512 Call

Leg 2: Sell $517 Call

Leg 3: Buy $510 Call

Premium: $4.82

Profit/Loss: $11.01

2nd Position

Leg 1: Buy $512 Put

Premium: $1.72

Profit/Loss: ($1.38)

Total Premium: $6.81

Trade Expiration:  03/8/2024

Hypothesis: There’s a lot of optimism in the market since the PCE came in within forecast but this week could be interesting, with services inflation and job data. The fed speakers have mentioned job data as a significant indicator of the inflationary trends.

Hypothesis Overview: Current market sentiment anticipates interest rate cuts within the year, with June’s meeting showing the highest probability. Several Federal Reserve speakers have highlighted the importance of job reports as crucial indicators for adjusting monetary policy, especially as inflation gradually decreases. Additionally, the ISM report’s unexpected surge in prices paid previously could significantly influence market movements. Bitcoin has soared to new highs, fueled by investments in a recently established ETF and the anticipation of a halving event.

Trade Strategy Reflection: My initial strategy was sound, yet mistimed, leading to multiple positions during the day’s volatility. I initiated with a $512/517 call spread, expecting gains from a subdued ISM services report. After peaking at $514, the market dipped to $504.91. Lacking a direct trigger for the downturn, I anticipated a rebound, especially with the critical employment report on the horizon—a known market catalyst. This economic climate has shifted previously ignored reports to the spotlight.

Given this pattern, I purchased two calls during the downturn, betting on a recovery. The S&P 500 saw a partial rebound, reaching $511.89 before losing momentum. Pre-market activity the next day suggested a bullish trend, pushing to a new high of $515.85. Anticipating a “buy the rumor, sell the news” event, I exited my position, securing a profit. However, a new high prompted me to speculate with a put option on the S&P 500, which eventually turned out to be losing trade,  keeping the week profitable despite a loss on the puts.

Trading Evaluation: Although profitable, this trade was neither poor nor exemplary, primarily due to my exit strategy. My entry points are improving through close market observation, including Level 2 data and various charts. The S&P 500’s sell-off, likely due to market repositioning, underscores the importance of disposable income in trading. Adjusting my position and perspective saved me again, emphasizing the importance of not overstaying in volatile conditions.

Next steps involve setting a loss limit to manage risk better and seize new market opportunities. The latter part of the week involved speculative puts based on the employment report, a risky move that fortunately didn’t harm my overall results. Exiting positions early led to regret as the market rallied post-report. Future strategies will focus on patience and risk management to enhance outcomes. My journey towards becoming a proficient trader continues, recognizing that managing losses is as crucial as capturing gains, aiming for excellence in risk management to ensure profitability.

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