By: Steve Smith
This morning, I’m in a bit of a scramble. I’m managing 5 earnings-related trades, 6 current Options360 positions and just had a webinar postponed by 30 minutes. And of course, my internet is acting sketchy as Comcast does some digging in the area.
But, it’s all good. After a couple of frustrating days, due to swinging and missing trades, i.e. Tesla (TSLA), I’m back in the ring and sticking some jabs.
As mentioned yesterday, when you feel off your game and start revenge trading the best course of action is getting back to basics. That’s exactly what I’m doing this morning. Finding tight set-ups, aka favorable probabilities, to take some quick profits. To keep the boxing analogy alive, when the market is as volatile as its been with big price swings, it’s tempting to look for a knockout blow. However, this leaves you vulnerable to taking your own big hit. To better play the long game, it’s best to keep jabbing and scoring points. If a clear shot opens up you take it. But, the main objective is to stay on your feet and rack up the winning rounds.
Some refer to this as cash flow trading; keeping small steady profits accumulating so you’ll have the firepower for bigger gains if the opportunity presents itself.
Again, the best way for me to explain what I mean is by sharing some recent Options360 trades.
Earlier, we closed two positions; VanEck Semiconductor ETF (SMH) bearish diagonal spread established last week, in a steady downtrend, broke support around the $240 level.
The trade was established with the May 20 expiration. I intended to ride lower for longer. But, with this morning’s downstroke offering the chance to lock secure a 71% gain, I closed it for a profit. I may look for a new re-entry if it gets a bounce back toward $230.
The other trade Options360 closed today was a Nasdaq 100 (QQQ) iron condor, which we established just before yesterday’s close. The Alert I sent to members tells the story,
“Looks like a lot of bulls got trapped trying to buy yesterday’s reversal. Throw in the TSLA stink bomb, which has a ton of derivative and tied in algo trades, and you get the major liquidation we’re seeing today as stop levels get swiped out.”
The VXN (the VIX of Nasdaq) is up to 39. This is not capitulation or the big whoosh down needed for a bottom, but the fear I discussed yesterday is nearer.
MSFT and GOOGL report tonight and if they don’t spit the bit I think we get some price stabilization here near the Feb 24th lows and some contraction in implied volatility.
Let’s set up an iron condor with a slight bullish bias that expires tomorrow.”
We closed this position for a quick 58% return on risk. That’s good cash flow.
After a few weeks where I took one step forward and two steps back, I’m happy to be back in control of the action. And this is reflected in the performance of Options360. After a brief drawdown when the portfolio was up a mere 3% in 2022, it’s now up 12.5%, the highwater mark for the year. To be clear, this isn’t knocking it out of the park. But, compared to the S&P 500 and Nasdaq 100 which are now back down 14% and 19% respectively I’d say it’s pretty darn good.