Choppy Markets and Big Trip Around Losses — May 27 Trade Log
Markets are choppy and unstable at the time, IWM and SPY everyday challenge all beliefs and logic, optimism is driving markets to higher highs everyday; we have been talking about how indicators look like they have lost fuel and momentum and technically they should reach a limit soon, still, the markets lately are something different each day and denying the trend can have a high cost, we are doing it, and in fact it is taking us on a long trip around losses.
The IWM has not yet reached the 200 SMA on daily candles, without a doubt it is trying to reach it, it recently just closed the March BEARISH GAP but in the attempt to do so it left two BULLISH GAPS behind, one at $135 and the other at $125. Once again indicators are really high and are set to correct in the short term if this 5 day rally want to continue.
The SPY did manage to end up above the 200 SMA on daily candles as well, heavily loaded on tech stocks like AAPL, FB, MSFT and AMZN which have been rallying since the March lows the SPY is really close to once again reaching its all time highs, at first, these stocks led the fast climbing pace of the ETF, it has slowed down but the financial sectors rise gave it todays final boost so it could end up trading above the 200 SMA.
Bulls are clearly winning on this tug-of-war between the realists and the optimists.
IWM July 17 2020 $115 PUT
IWM took off to a neutral start shortly followed by a really quick but aggressive selloff, ever since we bought this contract it was a losing trade, our sense of direction on the market failed us. Excitement caught up to us, we have been clinging way too much to what we think will happen rather than the reality and it is really reflecting on the value of the contract.
The RSI finished at 74 as of today’s market close, the last time it was at this level (Apr. 28) it pulled back 10%, on the current level if it corrected the same percentage which is a typical rally for this stock it would reach our first target of $128.
Since we rolled over our contract it bought us more time and placed us in a more advantageous position where we could let it run further and time decay wouldn’t affect us as much. We are not following exactly the plan with this contract, we should have cut losses already and wait for a clear signal where we could buy the contract, hopefully not lose as much after buying and see great appreciation.
Friday we were too caught up on the idea of an overbought market and we could not see clearly, the stock was at the bottom of the price channel and still we bought a PUT.
Ford and Intel PUT Contracts
Another sign of clearly bullish markets, our other PUT contracts INTC and F also depreciated.
F didn’t move much we did not see any significant movement and it lost all day today.
INTC at a certain point of the day was winning and for some reason, god knows why, we didn’t sell, the target for this contract was never really attractive and we were too passive today when it came to taking decisions. We will watch the breakout above $63, if it comes to this we will cut losses and most likely reverse the trend.
LEAPS — Long Term Positions
A few days ago we began buying LEAPS (long term option contracts) from consolidated companies that will most likely make it out of the whole pandemic episode. We have seen large appreciations on these, the recent market rally has been pushing them forward especially the Citigroup CALL.
The advantage of having these right now is that they are diversifying our positions not only sector and industry wise but in direction, without these, our Unrealized P&L would be a lot higher. Options allow to buy Long and Short positions without any financial cost, like shorting stocks would bring so one can profit from the falls and the rises, it is something useful and important to take into consideration when investing in these.
Unless we see large 3 digit percent-wise appreciations we are not thinking on selling these at least in the short term.
AMD July 17 2020 $60 CALL
Once again we are dancing with the devil, AMD has cost us in the past a lot of money, but this time we waited for a smart trade, at least we think it is.
The strong morning selloff did a lot of damage to the stock and made the RSI reach lows that it had not tested in a long time, by the time we saw this trade the fish hook pattern was already confirmed, the RSI was rebounding and from the lows and the candle was already there. Without giving it much thought we saw a great opportunity for a good swing trade and we bought one contract. We are already profiting 19% on this trade, according to indicators there is still a lot of room to run and in 4 hour candles it has the 200 SMA as a support which will most likely not let it run a lof further down from that point.