Today’s action led to further encouragement for me to add or put more money to the long side rather than the short side.  I’m by no means looking to get aggressive with allocation but would like to get more involved to the long side.  I would still like to see a push and stay above this 1333-1337 level as stated in previous post back on June 7th:

“Also I am looking at that 1333-1337 as a tough level to crack. If I were initiate longs under this level they will be small. The last move we had to the downside in mid-May saw nice up days followed by consolidation which then led to last weeks selling. In reading several blog posts it seems that further consolidation would be the healthiest and I agree. I would like to consolidate below those resistance levels noted, let accumulation happen, and then rip to the upside…”

We did break above that level 2 weeks ago but it didn’t last long as the huge reversal we saw last Wednesday brought us back under these levels.  I do find it constructive that we recovered Mondays drop and like to think that there is quiet accumulation going on.  With that, I am still looking at those resistance levels but like to think that traders will start to short there, only to see us rip past 1340 causing those that went or are short to cover.  These two days of price action have changed my outlook as I now am more willing to add to the long side. 

Today I did follow my plan on the AAPL trade as shown in this post.  I got rid of the single call option that acted as a hedge in case we saw a gap down or selling in AAPL.  I was encouraged by the ending price action and in watching the 15min chart I like the price action.  I wanted to see the 574 level hold and now it looks like a cup with handle pattern is forming within a larger timeframe that is showing tight consolidation.  Below is the 15min chart (don’t have access to my regular charting software, so best I could do): 

With that I am still bullish here on AAPL but also added some short exposure through the SPX.  I placed a Bear Call Spread on the SPX with the weekly options, so I am looking for stalling into the weekend with continued upside price action.

Current Account:
Cash @ 90.4%
Long bias @ 4.9%
-AAPL Call Calendar @ 4.9%
Short bias @ 4.7%
-SPX Bear Call Spread @ 4.7%

Going into yesterday I was long only one position with AAPL.  Unfortunately this was a laggard through the day and the action was not impressive at all.  With the market being up yesterday and AAPL under performing I decided to adjust the position taking a loss on the original.  I was long the June weekly/July Calendar and I rolled the position down from the 590 strike to the 580 strike.  Also toward the end of the day I decided to add a weekly put option, giving me a risk graph as seen below:

This will capture any gap down should we open down.  Looking at the pre-market that is not the case as AAPL is currently trading +3pts.  I put on the weekly option with the intention of removing it if we close above yesterdays last hour high.  My thoughts for all of this had to do with the under performance in AAPL with the market making the move it was.  Also I am still bearish here as the SPX couldn’t close 50% above yesterdays move.  So with my bearish outlook and the performance of AAPL I decided to take on a position that is net short, but will remove based on the first hour of trading.

Yesterday confirmed the down move in the market.  I mentioned in this post  in that after Thursdays big distribution day, up days seem like a better shorting opportunity than anything else.  This held true on Friday as we saw a nice run after 1300hrs but unfortunately yesterday saw further selling with the SPX falling 1.60%.  This move further confirms the downtrend and I believe this 1300 level has to hold and if it doesn’t, I don’t see what would stop it from hitting 1280.

While I believe we are in a downtrend, I went from 100% cash yesterday and allocated some money to the long side through AAPL.   This position compromises 4.9% of my account and I look to hold this just before earnings.  I chose an upside calendar as AAPL IV is in the low range of its IV going back 30 days and looking back AAPL IV has increased into earnings.  So with the IV bias, I also have an upside bias in AAPL into earnings, so the calendar seemed like the fitting strategy for my opinion to take advantage of IV and price.

Current Account:
Cash @ 95.1%%
Long bias @ 4.9%%:
-AAPL Call Calendar @ 4.9%
Short bias @ 0.0%:

When coming into a day of a news event, such as NFP, or just any day other day when you find your portfolio over-weighted to one side being bull, bear, or industry you have to ask yourself:

“Can I sleep tonight”

Through my experience I have found that when I  feel uneasy it has been best to reduce that risk or take off the position.  Do I always follow this advice…no, and it has been damaging almost every time.  A recent case of my stubbornness that cost me can be found in a recent post titled An Addiction I Am Trying To Control. 

Basically this post talked about how I closed positions but then put more positions on as I felt I had to do something.  Even though they compromised a  small part of the portfolio I didn’t feel so great about them later that day.  The two positions that I didn’t like were a SPX Bull Put Spread and a /ZB Bear Call Spread.  I ended up closing & taking a -$75 loss on the /ZB trade, so nothing huge and that same trade is now severely underwater by about 3x that.  But the trade that did more mental damage than anything is the SPX trade.

I sold the 1310/1305 Put Spread for a $35 credit, risking $465 with the SPX trading at 1339.  In order for me to have a loss this trade would have to close below 1310 or a 29 point drop by Friday morning (2 full trading days).  Could it happen..yes but I went into the trade believing that two more 15 point drops after the selling we already had seemed unlikely.  Well Murphy took the markets and he was out to get me.  I wrote a follow up about the trade titled A Note on Risk and Following Some Simple Advice to Save Some Money that has more details.  The chart below shows the gist of the trade on a 15min time period.

I went back and learned what I did wrong and found I did mess up the entry based on the rules as I was in too much of hurry to get in the trade and I didn’t want to miss it.  I also disregarded my adjustment/exit level and didn’t take the smaller loss when I knew I was wrong.  Learning from my mistake,  I put the trade on again this week Wednesday with the 1280/1275 Bull Put Spread for a 0.35 credit.

I put the trade on when it was ready and recognized my risk parameters & adjustment levels.  I was going to keep the trade on into tomorrow as a 30pt SPX drop by close of Friday seemed unlikely but I asked myself “Would I sleep better if I just removed the trade”.  My answer was yes as we have data coming out overnight and pre-market and I ended up placing a limit order at 0.10 and was filled later in the day (which was near the high of the day) for +$25 per spread. 

As soon as I was filled there was the relief of not having the big risk going into tomorrow morning and hoping for a move to the upside or not a big move to the downside by end of day Friday. I am confident that we won’t have a 30pt drop but I also don’t want to take any chance and I was happy with the profit.  Murphy has kicked my ass too many times and now I can have a good relaxing Friday with mind at ease.

This is a post of some trading pain that I endured recently.  Some takeaways from this are risk management and cutting your losses when others suggest so.  In a prior post, An Addiction I Am Trying To Control, I stated on hoe uneasy I was about some recent positions I took on in the $SPX and $ZB_F (SPX Index options and Thirty Yr Bond Options).  I received some good and short replies as noted:

Basically they said that I should exit/unwind the position.  While I felt that was the right idea I also thought since the max loss in position was a small percentage of my portfolio, I wasn’t too worried about it.  I even replied to @The_Real_Fly that my plan was to exit this position.  The position that I took on is noted below.  This has been a consistent winner for me and part of my portfolio is allocated to this strategy, which consists of selling weekly credit spreads int he $SPX options.  So below you can see the risk graph of when I took on the trade and my max gain was $35/contract and my max loss was $565/contract on a close below 1310, with the $SPX trading 1340 at the time.  Also I thought I got a great fill as I was profitable immediately.

As you can see any close Friday morning (when SPX options settle) above 1310 would bring me a profit of $35/per contract.  This strategy has been a weekly strategy that seldom consisted of adjustments and the odds of probability have been great.  Seeing the action this day as a nice bounce point I decided to enter a long bias into this strategy.  The problem was towards the end of day the market characteristics changed and I was doubting this entry.  But thinking this was an extreme I decided to hold the position and exit on the next morning knowing this trade went against me.  So on the next morning I could have exited for about -$70.00/contract which was definitely reasonable given the month of gains  had with this strategy.  But my thought was that this action with the nice hammer on the 15min and green bar follow, that we would see some more upside or chop around but still I was a little uneasy with the price action and looked at the profit and not the loss.

So what happened? As you can see after 1:00 EST the selling undercut the days lows and the selling continued.  But me “hoping” for a bounce did not want to sell.  Unfortunately the selling continued into the close and looking at the risk graph I did not want to risk the downside and decided to sell.  As seen below at the time I closed my trade my loss was -$225/contract.

This was closed near the end of day and given the sentiment I thought I gap down would kill me as the SPX options are settled on a Friday morning basis after all SPX stocks have traded.  So if we settled Friday morning below 1305, which was only -5pts from Thursday close, I would see -$465/contract near double my loss.  But if we settled above 1310.35 I would see max gain.  So what is one to do?  I accepted my loss and did not want to risk double my loss and hope for an up day settlement for max gain.  So what happened at settlement the next day?   Yes the SPX settled at 1310.33 which would have resulted in a max gain of +$35/contract or a difference of $265 difference from my close.

Does this hurt the psychology of trading?  Yes it does as now I question myself going forward and have not put on the trade since.  But in fairness I am still profitable on the strategy but just need to get that confidence back.  One thing I do know is that the market action has changed and while trading on a close to close is fine the whippy action affects my thoughts with this strategy so I may continue to sit out while the volatility comes down a bit and the market is not so news driven.  Either way I still have faith in the system and losses are expected.  But this is where the trader and risk management comes into play as I was uncomfortable from the beginning and comments solidified my action for the next day but I still refused them on that next day “hoping” for the best…a disaster on most occasions and proven.  I will say this compromises a small portion of my portfolio and maybe why I put the suggestions to the side, but none the less, they should have been executed and the psychological damage is still a factor.

The chart below is the price action of the SPX and where and when I exited and when I could have exited.