Back to the Plan — 2% loss SPY Day Trade

In an attempt to achieve big returns last week we placed several trades meant to be held for a few days instead of day trading. These trades were Bearish on a more Bullish market and off-course, we payed the price of swimming against the current, once again we learned our lesson the hard way. For this weeks trading we went back to our original plan and tested it.

We are at a learning phase and we are still working on developing a strategy that will allow us the greatest returns and a good win ratio on the trades.

We based our trades using the MA Crossover indicator (Moving Average Crossover), the green and red arrow indicate a change in direction of the stock price. When we placed our trade the indicator signaled a cross in the Moving Averages’s without a specific direction (when this happens a red and green arrow are put over the same crossing), we took a bet and went with the current but by this time the contracts had a high price. We bought 1 SPY JUN 19 2020 290 CALL at $10.37. We set our STOP order a little under the 2.5% we had set on our strategy, the trigger price was $10.08.

We observed an odd behavior, the underlying (SPY) was appreciating, it had set a clear upward trend but the option contract was depreciating. There was not much interest for it, it decreased until it reached prices around $9.80–$9.90, off course our order had been filled, we were no longer holding the position, we had a net loss for the day of $35. It was not until the crossing of the MACD at around 11AM that other investors seemed to show interest on the contract and began driving the price up.

The underlying continued a consistent upward trend towards the end of the day and finally settled at $287.05 at the end of the session, it reached a day high of a little more than $288 and the highest bid for the contract we saw was at $11.26.

Takeaways from todays session:

• Enter the position patiently and follow the contracts behavior to get the best possible price.
• a 2.5% STOP limit is really low for trading options. The assets volatility guarantees that it will trigger it before taking off towards the desired direction.

For tomorrow’s trading session we will use the indicators to take the decision of cutting losses, if we had used this today, we would have profited from the session, as seen in the graph above, the MA Crossover never signaled a downward trend so we will test this strategy and hope we can profit from it.