Trade The Journey

Trade The Journey

Trading Review: Week of December 24th

  • Asset Traded: IWM (Russell 2000 ETF)
  • Strategy Applied: Vertical Call Spread
    • Leg 1: Bought $198 Call
    • Leg 2: Sold $205 Call
  • Market Outlook: Bullish
  • Option Premium: $2
  • Resulting Profit/Loss: $2

There’s an anticipation that the upward momentum might persist as buyers re-engage with the market, sensing that the Federal Reserve may be concluding its cycle of rate hikes. However, a pullback is on the horizon given the indices are lingering in predominantly overbought zones—the timing and intensity of this pullback remain the critical uncertainties.

Hypothesis Elaboration:
The prior week saw an unaltered rate decision, a move largely anticipated and priced into the market. The subsequent press conference was eagerly anticipated for insights into the Fed Chair’s assessment of the economic landscape and the future direction of interest rates. Chairman Powell, despite not aiming to fuel the markets to new zeniths, inadvertently managed to do so.

Attempts by various Federal Reserve officials to temper the market’s exuberance have thus far fallen short. With both the Consumer Price Index (CPI) and Producer Price Index (PPI) signaling a regression in inflation, it was my belief that the upcoming week’s economic data would echo this trend.

Trade Execution and Management:
Driven by a touch of FOMO (Fear of Missing Out) after settling a significant trade earlier that week, I embarked on a bullish strategy targeting the Russell 2000, which I believed had more room for an upswing. The entry, at a premium of $2, coincided with the week’s peak, exposing the trade to heightened volatility. The trading days were a rollercoaster, with profits and losses alternating. The optimism surrounding the GDP and PCE reports encouraged me to maintain my position. A sudden dip in IWM before the PCE report’s release initially baffled me, but my nightly review revealed no significant news that could have prompted the drop—suggesting a bout of profit-taking as the indices hovered near peak levels.

The PCE report, while confirming a broad retreat in inflation, did not spur the futures markets as I had projected. Post-report, the indices saw an initial surge but eventually settled into a more tempered rhythm throughout the day, allowing me to conclude the trade near the day’s high for a commendable profit.

Trade Review:
Despite the less-than-optimal entry point, the trade was managed with a measure of finesse, culminating in a profitable exit—possibly the best outcome under the circumstances. Years of market experience have honed my sense of momentum, and post-PCE report, I sensed a diminishing thrust, tempering my expectations.

Previously, a sharp decline like the one experienced by IWM would have prompted a hasty exit, but that was before I cultivated a more nuanced understanding of market sentiment. It’s a continuous learning journey, and while I acknowledge there’s much to master, the progress validates my conviction in my trading acumen.

A recent engagement with Linda Bradford Raschke’s day trading workshop for the S&P futures imparted numerous lessons, with one particular takeaway resonating deeply: her humble approach to the markets. Instead of lamenting over missed profits or unsuccessful trades, her almost Zen-like demeanor towards market outcomes—embracing what’s presented rather than chasing profits—struck a chord with me. I aspire to internalize a similar philosophy in time, acknowledging the myriad of opportunities the market perennially offers.

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