Learning From Mistakes — SPY Options Swing Trade Log
This Friday’s session was the first session we were able to trade in the same room and not even the whole team, it was only me and one other team mate. With the coronavirus outbreak and social distancing guidelines, we have been meeting through video calls, by night to review our days work and discuss our strategy and early in the mornings for a while to place the trades; active virus cases have been really controlled in Costa Rica and we haven’t seen exponential growth, the government eased some restrictions and we took advantage of these to meet. We were all really disciplined and would always be talking to each other or be present during the sessions, still it is a whole other story to trade with other people in the same room; the mind easily plays games on you and even though markets tend to be numeric and logical, there is a huge psychological part when placing trades that is not accounted for and usually it is the one to blame for the majority of losses or irrational decisions.
We were not sure what to expect of the markets, no one ever knows how they are going to behave and Friday’s, if anything, are even more unpredictable. If it followed last week’s pattern markets would have gained, however, this was not the case, the S&P 500 dropped even further, a 2 day downward rally, more or less -4%, nothing we hadn’t seen before. News spread that president Trump was once more behind the Chinese on import tariffs, the markets didn’t take this well.
The big news and the end of the week volume had contract prices through the skies, from Thursday’s purchase and other bad plays we had learned that early in the morning was no good time to buy; we knew for a while it was a rookie mistake and still we had fallen for it several times; this time, trading with more than one person in the room helped to keep things straight and not let fear or impulse mess up with the plan. We followed closely the SPY, it began the session trading at around $285, it held that price but we were patient to buy, at around 10:45AM the EMA’s clearly distanced from each other and the selloff gained strength, still we were patient and waited until midday to purchase. We wanted to buy a June 30 2020 290 CALL, these contracts at the beginning of the session were trading at around $11-$12 a piece, we made sure to always BID half a dollar or a full dollar below the highest BID. When we saw that volume had diminished and the spreads between BID and ASK price were reducing we started to close up to the BID always trying to catch a better price, because we trade a derivative from a stock, it is important to follow the underlying not just the options chain, we followed closely the days trend to enter in the best possible moment (the price were the stock settled or rebounded), when we saw the RSI hitting levels of 20 or below and the MACD at its lowest we bought; one June 30 2020 290 CALL for $10.25. By the time we bought, the stock was trading at around $282, still, it managed to keep dropping, nonetheless, it didn’t go below $281.50, the contracts did go cheaper, we saw them at around $9.70 on their lowest, still we were glad, we played patiently and smart not by feeling or despair.
At the end of the session and with a slight after-hours pickup, we were only losing $27 on the contract and the SPY was trading higher than our entrance point. We were set to follow the long term trend.
If we follow the daily candles over a 6 month period like the graph above, we can see that the long term trend is still set to go up, we are not stating that it will or has to keep climbing but we are playing our chances smart and swimming with the current. Although the RSI seems to be at a high point, over the last month or so it has bounced a few times on the same level, the MACD is in the positive numbers indicating an upward trend, it seem to be losing strength but that is due to the reduction in volatility and volume that the February-March selloff caused, if we were to look before the crash, the MACD barely moved.
