2020: Week 5

Joseph Weekly Trade Chart

What a week! After several weeks of no action on my end, I was as active as a bunny in the springtime this week. As I guessed, the market was down on Monday. However, I would not have predicted it would be as far down as it was at the opening.

To my mind, nothing had fundamentally changed in the economy though. Yes, the Corona Virus is scary. Yes, our government is a bit of a circus, but really is that too much different from the usual? I know the virus is serious, but so is the flu season that we go through every year, and that doesn’t cause a huge downturn. All that to say, I saw the drop as an opportunity.

New Trades

I watched the market on Monday when I could, and after seeing that it didn’t appear to want go too much lower I decided to jump in. On my lunch break I deposited another $50 into my Robinhood trading account and bought 1 SPY Call Option for $28 at a the 338 strike price. SPY was trading around 324 at the time. This move is generally outside of my strategy, but I was pretty confident. On Tuesday and Wednesday I was proven to be right as SPY climbed back into the mid 328’s. I thought about closing my position at this point as it’s not a good idea to hold onto long calls, but I got a little greedy and hopeful. My Call option was trading at $56 which was a 100% profit on the trade. I should have taken it.

A Note On Trading Psychology

Thursday the market had another strong reaction, and my option was in the red most of the day. Finally in the last hour of trading things began to climb up again. Through out the day I had been thinking about the position and my psychology regarding it. Because it was not a risk/reward defined position, my old habits of hope and greed had kicked in. I realized that I need to not only have my risk defined, but also my reward. That way I can easily take profits when they present themselves because my brain won’t convince me to hold on for the theoretical unlimited profit potential of an open ended long call or put.

The fear of holding a worthless call, or losing some of my realized profits because of my bad psychology, helped me make my next decision. When my Call got back up to $40 I sold it and banked $12 of profit. Even though the market kept climbing after that, I was happy with my decision, because it was the right one. The wrong decision I had made to begin with was to buy a long call instead of opening a debit spread. If I had had more funds available at the time I would have made the same directional bet using a credit spread. With a long call, long put, or a debit spread, you need to be completely right about the direction and timing. Whereas with a credit spread you can still be profitable even if the position doesn’t go your way as fast or far as you expected.

Friday proved my decision on Thursday was definitely the right one. The market sold off a whole bunch more, and at this point I could happily admit that I no longer had a strong idea for how I wanted to trade it. So I did what is oftentimes the smartest thing to do: Nothing.

Getting Into Dividends

I also started a position in Ford (F). I’ve been watching it for a while, and feel that anything below $9 is a decent entry price. I bought three whole shares at an average price of $8.80. It’s a small start to a position that I want to grow to 100 shares. The strategy here will be very similar to Marcus’s Dividend Builder. Once I have built the position, I will begin selling covered calls along with position trading around that 100 share core. Of course, I’ll be earning those sweet F dividends

During the wild oscillations of the market I was also able to close my Iron Condor in GLD for 50% gain. I opened it at $38 and close it at $19. I figured with 3 weeks to go until expiration, the math swung in favor of me getting out early and taking those profits.

My other Iron Condor in EEM is still in play. EEM went down with the overall market and has been trading below my lower leg strike price of $43. This one is proving to be an experience in trusting the process and waiting for the statistics to play out. Even though I had a profitable week, EEM is currently dragging down my unrealized profits.

And that’s about it. All in all, it was a good week. It could have been better, and it could have been a lot worse. I’ll be closing January with $41 in realized profits. 20% is not too shabby considering I’m trading with $200. This is my first month back at it after blowing up my first account and I definitely feel I am on a better path.

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