c505218304b50c59c3659f6dda43bae7-links-0–>Finally after the Trump Election, the markets are clearing up and doing what I expected them to do earlier. Looks like everything was delayed until after the election. Before the election was extremely difficult to make sense of what was going on.
Here’s a screenshot of some of the BUY alerts I sent starting from Tuesday, November 8. Recall that the election was Tuesday night.
“Putting on a very small SPY call position, risking $600 on 2 SPY DEC ’16 215 Calls at $3.00. Worst case if market collapsed, lose the $600. But if there’s another big rally, could be bigger risk to buy high after the election. So just doing a small 1 month slightly out of the money call option here.
We actually put on a small call option on the SPY (S&P500 ETF) the day of the election as the market was showing signs of moving up.
Of course there was election risk -the previous time with Brexit, the E-mini futures in the S&P500 moved some 100+ points.
It turns out history repeated itself — there was, yet again, a more than 100+ point collapse as the vote count was being tallied up.
Bought Dec 16 ’16 215 Calls – when ES was at 2138, 2150, and 2159.
We alerted this trade 3 separate times –once before the election, once the day after the election, and once again on Monday after the election.
Our Buy entries were:
2 @ $3.00 = $600
2 @ $3.85 = $770
2 @ 4.1 = $820
So we had about a $2,200 position on the SPY December calls 215 strike.
2 @ 5.41 = $1,080
2@ 6.36 = $1,270
–and are still holding the remaining 2 calls.
So if you pair up the first two buy entries above with the first two sell entries then we get:
$1,080 – $600 = $480 in profits.
$1,270 – $770 = $500 in profits
Realized gains = $500 + $480 = $980 in realized gains
Unrealized gainss = $$1,270 – $820 = $450 in unrealized gains.
The market slowly inched up towards 2180 from the 2140 region where it was stuck for months- and that’s when we started selling up at 2180. We sold again at 2200 – and are still holding our last batch.
Too bad we only did a very small position – due to uncertainty with the elections, it was difficult to go in big, but it turns out it was the correct trade. Holding it through was also not easy.
In addition, we also alerted to Nasdaq QQQ calls on November 10 when all the tech stocks mysteriously dropped quickly after concerns about Trump hating on Nasdaq surfaced up the day after election results.
From back in October – we also alerted to December SPY 220 Calls – at the time, these were way out-of-the-money.
Now, those calls are in-the-money as SPY is now at 220.70 – over the 220 strike – so that position has more than doubled.
So these were great trades, I wish I put a larger position, but after a bloody Septebmer/October where I could not make sense of the market, I had to proceed cautiously. I was probably too cautious.
At least these trades are now profitable – and we exited a good amount of them for realized gains.
We also have some trades that are underwater at the moment, but we expect them to turn back up fairly soon.
Here’s graphically where our alerts were – and you can match it up with the Whatsapp screnshot above.
Indeed, we proceeded with a 3rd wave grind up over 2206ES.
If you are new to options, you may be interested in watching our intro option video lesson.
So why did I choose to buy a Call option instead of selling a put spread.
Both the SPY call and SPY put credit spread are bullish type trades, but the SPY call trade caps my loss into how much I put into the trade.
With the put spread – while it’s technically a high probability trade, if I put on the trade, and then the market goes down that same day, I go into negative territory very quickly and it only gets exponentially worse.
If the market were to actually open down 100+ points during market hours, your account would show the maximum loss possible — likely 5x your theoretical max profit. So if we aimed for $1,000 in profit, the account would be down $5,000.
While it’s true that the losses are capped at $5,000 — the tough part is holding a credit spread and stomaching that huge volatility in the account.
Compare that with a call option.
If the market were to open down 100 points, the worst case is you lose however much you put into the calls. Those calls would indeed be down -90% — so if you put in $1,000 – you would be down $1,000 or $900 — much better than being down $5,000.
The two strategies are still apples and oranges, so it’s not a direct comparison, but that’s the rationale for choosing the call option over put spread.
When there’s expected volatility, the spread strategy is not the best as it exposes you to huge swings in your account potentially.
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