12/11 – FED day, 1/4 point rate drop. The market HATES it.

I has been a long swim upstream, but today the floodgates let go.

Quite simply, the market had run too far WAY too fast on relatively light volume. They moved beyond the mythic 1490 level. About a week ago I laid out this scenario. The market will do what screws the most people. And in the market’s haste to rise, it screwed me too. I sold a few off my positions (HRB, USB) which would have done extremely well today. So sad. And my acct had nearly a 9% (all-time highs) draw down in just the past 5 trading days. However, today was quite a welcome sight. Overall, up 5% when all was said and done. And of course the best part is that all my positions are towards the middle of their risk graphs, gaining theta. Many positions now have just 9 days until expiration, and an extreme amount of volatility premium now ready to evaporate.
SPY daily chart, after the fed announcement
Going into the announcement I just wasn’t sure. I don’t pretend to know, rather I just try to make a plan. I’m a ski instructor by training, remember. I looked at my charts, and even they had been slightly breached. Now what? The bulls are certainly disappointed. They were crushed today, and a bearish engulfing daily bar is left in it’s place. I think there is still a lot of pain for the longs. They have had a great run. Retesting of the lows? Too early to tell, however I think this will give momentum to go lower. And I am set up to benefit from that.
USB – Bought 1 unit dec/jan 32.5c for .22. Sold 4 units dec/jan 32.5c @ .27(pre fed), 2 unit at .42 (post fed). I still have 7 units on.
ADCT – 1 units Feb/Jan 15p .12-.13, and 3 units of Feb/Jan 17.5 for .15. This is the 3rd day of building this position. I plan on building more of the 17.5 strike, if I can get the right price action.
HRB – Bought 1unit dec/jan HRB 20p for .35.
IWM – added 2 units Jan 79p/75p spread for 1.85. With underlying @ 76.98. This is an add to 2 units I purchased for 1.72.
I am certainly not out of the woods yet. However, this big down day has put a spear in the bull. I was thinking about what I have learned about myself as a trader over the past week. I didn’t participate in the strong move up. Over the past two weeks, frankly I didn’t think the market had it in it to do so. When the rally began I was long of Delta and theta, so I was effectively LONG.. And I missed the day the downtrend broke. The market rose right to a 38% fib level and held for a couple days, then it moved up to the 50% in one day, then held. Then rose sharply again in a day to the 61.8%. Where should I have entered? 3 days really comprised this rally. At any point it could have pulled back. And once the market reached the 50% retracement I was significantly short of delta with my Iron Condors and Calendars. So I was effectively SHORT the market.
I entered some short IWMs around the 61.8 level, yet the market continued to move through the medium term downtrend line. As the underlyings in several of my Equity calendars spreads began to reach breakevens, I began to exit 17.5p HRB and 32.5c USB, as per my plan. I made profit which were large 70%-250% but they were not as obscene as they are now. I was proud of myself for following my plan. I left money on the table, but I did follow my plan. I am in this for the long haul, I refuse to take a catastrophic loss. In fact, I don’t like losses period. Through all of this I was lost on two brief directional plays (<$100 each), gained on 3 directional plays, and gained on 9 separate calendar positions (70%-450% each).
Would I have done anything different. With the knowledge I had at that time. No, I really would not have. I was able to recognize the fear and greed I felt, and temper that within my trading plan. I am pleased with the trading I made on that cycle, now I am game planning for the next cycle. But for now I am going to rejoice.
Live joyously!

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