Trade The Journey

Trade The Journey

Week of December 12th

Trading Asset: SPY (S&P 500)

Trade Asset: Vertical Call

Trading Premium: $2.96 (Two Positions)

Trading Profit/Loss: $0.96

Trading Leg 1: Buy $454 Call

Trading Leg 2: Sell $461 Call

Hypothesis: Continuing claims showed that people are having a little harder time finding jobs. I think the jobs reports being released this week will support that. I’m bullish, because I think a cooler job market will lead the market to increase the probability of rate cuts next year.

Trading Hypothesis and Execution:

My trading hypothesis this week was formulated based on economic data suggesting a tightening job market. Anticipating a softer employment situation report, I leaned towards a bullish position. My strategy was anchored on several reference levels to gauge the market’s momentum and direction.

Navigating Market Volatility: This trade proved to be a rollercoaster as expiration approached, with a few missteps on my part leading to a diminished profit. On the first trading day, the SPY struggled to break above the $456 level, with market participants in a holding pattern ahead of the employment report. The JOLTs and ADP employment reports, both falling short of expectations, didn’t significantly sway the market.

I ended that day with a modest gain. However, the SPY remained rangebound the following day, despite labor market indicators pointing towards a loosening trend. The real challenge emerged on the third day when a 4% drop in crude oil prices triggered a downturn in the indices. Caught off-guard by this development, I hastily purchased an at-the-money put near its peak price.

Market Reactions and Decision-Making: As the market declined, the put option initially saw an uptick, but gains were limited. Closing the day with a $1.40 loss per share on this position, I was uncertain about the next day’s market reaction. The early morning release of the employment situation report offered a glimpse into the market’s response, with SPY prices rising sharply at the open. Most of the previous day’s losses were recouped as the put premium declined, but I hesitated, unsure of my next move.

Eventually, I exited the put position and shifted focus to the upward trajectory of SPY. However, I misread the market’s momentum, closing the SPY position with a profit that, in hindsight, was just a step away from a significantly larger gain. Witnessing SPY hit a new all-time high was a tough pill to swallow, leading to an ill-fated attempt at a revenge trade with a butterfly strategy, which resulted in a minor loss.

Trade Reflection and Lessons Learned: The key takeaways from this experience are manifold. Firstly, the impulsive put purchase amid market panic was ill-timed, especially buying at the high. Holding onto the position in hopes of a market pullback only compounded the loss. A better approach might have been to opt for an out-of-the-money put, which would have been less costly, or to patiently wait out the market fluctuation if confident in my initial forecast.

The second misjudgment was underestimating the market’s velocity. In retrospect, the rapid buying action indicated a strong bullish sentiment, with every dip being aggressively bought up. By the time I fully grasped this, my position was already closed, leaving me to watch SPY’s continued ascent from the sidelines.

The emotional impact of missing out on substantial profits led me down the path of revenge trading, an endeavor that rarely ends well. A key strategy going forward would be to detach from continuous market updates, allowing for a clearer headspace, free from the shadows of past trades.

Lastly, understanding the market’s pace is crucial. Differentiating between slow and rapid market ascents in real-time is challenging but crucial. This experience, though fraught with errors, has been enlightening, providing me with greater insight for future trades. While absolute certainty in trading is unattainable, being attuned to market dynamics and momentum can offer valuable clues to inform decision-making.

Trading Journal



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