c505218304b50c59c3659f6dda43bae7-links-0–> Our trade entry this week was not ideal as the market fell 40 points from our bullish entry near 2171 — most of the drop happening over the weekend, so there wasn’t a good chance to exit in a good spot. Yet even with the market ending at 2162 today, we were still able to manage a break even trade (slightly positive like $30-$40) because of the credit spread that bet we would close today above 2152/2153.
That said, I think it’s important for people to recognize the risks to credit spreads. This strategy worked wonders a few months ago — but now the market has completely changed. The size of each candle is massive compared to before. The market was up and down 20 points in both directions around the Presidential debate and even today in the last 24 hours was up and down 10+ points multiple times. This is not the ideal environment, particularly with credit spreads – causing account fluctuations all over the place. One minute you’re doing great, next minute you’re down a lot, etc.
Of course, this is not the environment I expected especially after the Fed announcement of unchanged interest rates last Wednesday. Going forward, I will try to make an effort to look at the economic calendar for the next week ahead of time so I think twice before holding a credit spread through a weekend. Usually, holding them through the weekend is our way of taking advantage of time decay, but this is only effective if the market doesn’t move much over Sunday night, which is not what happened this past weekend is the market extended selloff continuously without a bounce during market hours to exit.
Anyhow, I will try to put together an audio podcast detailing lessons from this credit spread trade and also discuss the introduction of Wednesday weekly options in the SPY.
Consistent with our prediction yesterday, we got the bump into 2158 wave 1 pink – that then pulled back in a wave 2 towards 2144 – a bit lower than we expected as we were expecting 2147/2148.
But it did pullback in a wave 2 — albeit an a-b-c wave 2 pattern, before forming the 3rd wave up over 2160.
4th wave support would be the top of wave 1 – 2157/2158 — consolidating below 2160 without falling below 2155 would be bullish.
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