Hi all, I don’t publish these often, but I thought it would be good to share my thinking on what worked and didn’t work with the SPY 280 puts trade.

Watchlist thoughts this morning:

Check out how tight last week’s weekly bar was!  We are due a nice move one way or the other within the next couple of weeks I think.  For today, barring any big “sell the news” type of volume, I’m looking for a gap fill 280.80 area, and then a push into 282+.  If we push 282+ pull and hold 281.30/.50 area and start grinding higher, I might also join.  As always, staying cautious and prepared for potential sell off/profit taking week.  I think we are at 9 straight green weeks 

So overall the initial drop into 281, was expected and I was looking for a bounce(watching price action as always).  The clue was seeing how CRM and BA started selling while AAPL was struggling to push higher.  That observation kept me from going long for the 282 move.  As SPY approached 281 after 10:30, I started eyeballing puts and then alerted the 280 puts. This worked out great, was a good entry, and might have been red for a whole 5 minutes.  I internally targeted 278 as the level to be tested, with possible consolidation around 279 along the way.

What I did well, being mentally prepared for the short by being aware of the daily and weekly charts, and recognizing 280.80 break will likely leading to major selling.

What I did not do well was placing the exit orders ahead of time for the 2pts to scale out of the short properly.  I should have written those levels down in the watchlist ahead of time for everyone.   I also allowed myself get affected by 2 other trades in the morning where I minimized gains. I think one was 20% vs 40% and another was 50-60% instead of 100%.

So though I alerted that sell targets were 1.50-2 once we reached .70, I didn’t manage to hold enough size for those targets, nor did I add back sells.  Basically I gave myself a major pay cut — with properly scaling out of the trade should have yielded $8-20k per $1500 invested.   These setups don’t happen everyday so this got me particularly upset for not executing really well on this.  I should have been able to clear 80k+ using 5k in capital (measuring not by dollar result but acceptable risk/reward and good use of capital)

So what could I have done better.  Do the same thing I did Friday which gave us a 10 bagger,

  1. Place sell orders ahead of time, once trend is establish.
  2. Place stop profit orders.
  3. Walk around and just let the trade work and not over manage it.(my mistake)
  4. Trade standing up — I find that moving around helps me be more patient and let a trade work.
  5. Chart the option contract.  If I had seen the size of the orders chasing after mine I may have held longer or even add more to the position.

Another thing that worked great, I was going to leave to go skiing, but saw the trade setup and pounced on it.  I know I preach about take your gains from first 90 minutes and leave or don’t trade but some risk/reward setups are too good to pass up.  This was an example of knowing when to break the rule.

If you didn’t get to participate in this trade idea, the great thing about this business, is NEVER feel like you missed out, there will ALWAYS be more opportunities for you to try again and improve your skills.

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