Cutting Losses on AMD and Taking Risks on IWM Swing Trade — May 13 Trade Log
The market started off to a continued negative rally after Powell’s conference where he stated that the recession we are living through is something that has no comparable past event other than maybe the Great Depression of the 1930’s. In just 2 days the market dropped more than 5%, something really alarming.
Our portfolio was mostly PUT loaded, some planned, others just speculative; our only CALL was a Ford contract that we had seen gain and after today’s selloff it had great losses. We benefited largely today and made several moves taking advantage of the strong negative motion; we sold 2 contracts, bought 1 and held 3 (Applied Materials, Ford and Grubhub).
AMD July 17 2020 $37.5 PUT
The strong selloff had amounted to a almost a 9% 2 day loss for the stock, we weren’t sure whether or not the selloff would continue, and for the first time in a really long time this contract had a price somewhat equal to our entrance point. Our initial cost was $1.11, at around 12PM the selloff was at what it seemed to be the lowest point and the market price was only $4 below ours valued at $1.07, of the 2 PUT contracts we had on the Semiconductor Industry this was the one closest to the entrance price so we decided to sell with almost no loss, this way we would be less loaded on the bear side of the same industry, even though it is a small portfolio, diversification is always important. As Barry Ritholtz once said “The beauty of diversification is it’s about as close as you can get to a free lunch in investing.”
When we observed at a 3 day chart around 2PM we saw that AMD was at least at its lowest point for the day, off-course this chart is looking back at the trading session and it is obvious to spot the lowest point, however at the time we could not determine whether it would keep going or stop, since we already knew we wanted to get out of the position and reduce losses to the minimum we waited for the RSI to reach its lowest point from previous days where it would be extremely sold out and it would lose strength on the downward movement, we also looked at the Momentum Oscillator in the MACD (the green bars at the bottom) which indicate the highest trading points and strength in momentum, when we saw that it reached a peak for the day and started coming back we sold, our understanding of the indicators asserted accurately and we sold at the best point of the day with almost no loss.
Patience played a huge role in this trade, at some point we saw the contract depreciate to more or less 50% of its original value.
NIO August 21 2020 $3.5 PUT
We had a good read on the trend for this contract and in fact did estimate well the price movement, after rebounding from the top Price Channel barrier with a high MACD about to cross and an above average RSI we could tell it would come down the problem is that the price fluctuation nominally speaking is really small and this affects the appreciation of contracts. Since it barely goes ITM its gain is almost null, when we saw we would not be able to win a lot more on this trade we exited with only $1 of profit after selling.
IWM June 19 2020 $135 CALL
We saw the large selloff today as a window of opportunity, a scary window to go through, at least for me but still a window. We had to be cold-blooded, when trading this is something really important, try not to look at money as what it is, money, and try to think of it differently, like if they were points in a game and like many things you need to risk to win.
IWM is an ETF that follows 2000 Small Cap. companies, it is a largely traded ETF that has a rather similar movement to the SPY although less volatile.
Lately it has followed a clear price channel, sometimes, this price channel can go out of trend but as seen in April 30th it may come back. In this case we saw an excellent somewhat risky opportunity to buy a CALL contract at a great discount.
If we were to observe a longer term chart we can see that in fact the trend is still bullish. We bought the contracts at the days low, it cost $1.92, in after market hours it is profiting around $14.
We sometimes use an online tool called Stock Consultant (stockconsultant.com) which helps us determine certain resistances, supports and their strengths, long and short interests, probability and profitability of trades and a lot more. It is really useful and as of today it placed a long interest of 55% and a short interest of 0%, with a price target greater than $135 for the stock, off course we did not only use this tool to place the trade, indicators like the RSI are in the month-lows at a clear resistance point and the Momentum Oscillator on the MACD is close to 0, indicating low volatility and a good entrance point.
