5% Profit Day Trading SPY Options
Markets were set to open high on Friday April 17th after a series of good news on Thursday’s aftermarket hours. A possible treatment for the coronavirus released by Gilead Sciences Inc. had yielded positive results on several patients and Trump’s plans to reactivate the economy had investors optimist to start off the market on Friday.
We expected to see a high RSI as the stock had risen almost $10 premarket, The indicator was around 80, that told us it was extremely overbought, we also used the MACD as a guide, the indicator was also really high, so we set our bets towards the downside. We were waiting for the signal to buy a PUT.
We placed our trade shortly before the RSI started changing clearly its direction. 3 SPY May 29 2020 270 PUT contracts were bought at $8.24 a share of the contract, a total investment of $2472. We bought the contract before the downward trend started taking place so we saw the position losing some money at first but it quickly started winning as the indicators adjusted and the stock price went down. It was a risky approach to buy without a clear signal, luckily it turned out in our favor and we were able to profit from it.
The stock respected 3 supports today, these supports were set by Tuesday’s trading session, the first level is demonstrated by the Green Line (S1), the second by the Yellow Line (S2) and the third by the Red Line (S3). We were confident that the stock would cross S1, the indicators favored us in this first level, they were really high and had to adjust to a sustainable level. As they crossed S1 and approached S2 it showed resistance for a few minutes but it was able to cross, after this it quickly reached S3 and we were optimist that it would break the support and close the gap, which would have most likely driven the price of the stock down to $280 a share. As seen in the graph above, the stock did respect S3 and bounced back, scared that the price wouldn’t come back down, to test S3 we sold the contracts on their way up at $8.72 a share of the contract. With adjusted trading costs we captured almost a 5% profit. A good overall trading day.
We made a few mistakes that could have compromised our trade. First, we did not set a STOP LOSS, this has to be defined even before the trade is placed and set as soon as you enter the position, so if there is an unexpected move you cut your losses to the minimum and to an amount you were willing to sacrifice, after this, if the position starts winning money, the the STOP LOSS can be adjusted to first, cover trading costs and after covering costs start looking to lock in some profit even if it hits the STOP LOSS. In todays trading session we set the STOP LOSS 10–15 minutes into the trade, we were lucky it did not backfire but it was a risky move and we will make sure not to repeat this in the future.
The second mistake: we did not set our target price. Our daily target is to earn 10% profit on each trade we place, we knew this, still, we were distracted following the stock and placing a late STOP LOSS so as the price of each contract reached $9.05 per share (which was our 10% target) we were not prepared to sell or take a decision. This price of course was only when the stock price had reached its current day-low, when it bounced back we were hoping it would return to S3 and break it, it didn’t and by not knowing we had reached our target we missed out on the chance to maximize profit for the day.
We will pay close attention to the mistakes we made and do our best to learn from them and not repeat them. These mistakes still don’t take away the fact that we had a superb return and followed an effective strategy, we hope to get better and better each day and learn more from each trade.
