Happy Friday Traders!
Another week is in the books, and we hope that you all got a little bit better in your trading this week. After a few weeks of strong upside momentum in the market, the indexes “took a breather” this week, pulling back to and consolidating on top of the daily 8 Exponential Moving Average (EMA).
Typically, after a 2-3+ Average True Range (ATR) move to the upside, the market and leading stocks will tend to revert down to the daily 21 EMA. However, with the recent strength we’ve seen, and the giant weekly squeezes behind us, it may be possible that the modest dip to the 8 EMA is all we’re going to get here.
Should the markets fall to the mean, we would view this as an awesome buying opportunity. Vice-versa, if we race to new highs off the 8 EMA, we’ve got a few positions open that should thrive. As always, we’ll be prepared for whatever the market throws our way next week, and with that being said, let’s jump into our review of open and closed trades from this week.
NDX Call Credit Spread
After a big-time push to new highs, QQQ started showing signs of exhaustion, accompanied with lower time frame squeezes firing short early in the week. As a hedge for our long positions, and as a play for a reversion to the mean, we sold this call credit spread on NDX in the Options Room this past Monday.
As has been the theme, the markets proved their resiliency with a quick bounce back above the 8 EMA on Thursday. We don’t like going against “the path of least resistance,” and decided to buy back the spread for modest gains, and then reallocated that capital into AMZN.
· 4/19 SOLD -10 VERTICAL NDX 100 (Weekly) 30 APR 21 14100/14120C @ 8.25
· 4/20 BOT +10 VERTICAL NDX 100 (Weekly) 30 APR 21 14100/14120C @ 6.85
· NET P&L = +$1,400
SPX Iron Condor
Once a daily squeeze has fired and begins to show signs of exhaustion (represented by dark blue bars on the histogram, below), this can be a great time to open iron condors, as the markets can tend to chop back and forth for a bit before gearing up for their next directional move. That wasn’t the case this time around, as the markets are quickly running back toward the all-time-high (ATH) this (Friday) afternoon. In an effort to not be on the wrong side of the market, We decided to buy back the iron condor for a very modest gain, which is always better than taking a loss. We do not want to fight this market’s momentum, and closing the iron condor was an easy decision as that capital can be used much more efficiently on directional plays.
If you remember, for much of March the iron condors were the “perfect trade.” They were only “perfect” because that is what the market had to offer. As of right now, what the market has to offer is some serious momentum, and the iron condor is designed for just the opposite. The markets can change quickly, and this is a good example of why we must remain flexible in our ideas.
· 4/21 SOLD -6 IRON CONDOR SPX 100 (Weekly) 30 APR 21 4250/4260/4030/4020 @1.95
· 4/23 BOT -6 IRON CONDOR SPX 100 (Weekly) 30 APR 21 4250/4260/4030/4020 @1.55
· NET P&L = +$240
SPY Iron Condor
For smaller accounts, we opened up an iron condor (see chart below) on the SPY with a similar structure to our SPX condor. For the reasons mentioned above, we canned this iron condor early Friday morning for break-even, which again, is always better than letting a trade turn into an unnecessary loser.
· 4/21 SOLD -3 IRON CONDOR SPY 100 (Weekly) 30 APR 421/423/403/401 @ 0.54
· 4/23 SOLD -3 IRON CONDOR SPY 100 (Weekly) 30 APR 421/423/403/401 @ .55
· NET P&L = $0
APPS Put Credit Spread
Good old APPS! We decided to take the loss on this trade (see chart below) early this week, as we reached the point where the setup was clearly not “working.” Though it was a losing trade, we will swing at this kind of setup 10 times out of 10. It’s so important to remember that the results of one single trade are meaningless, and it’s the net result of 50 or 100 trades that we should grade ourselves on.
This time around, the setup did not work in our favor… but we are firm believers that if you take 100 trades with the same structure that APPS offered when we got long, then you will come out on top.
One good lesson we’ve taken from this trade is: before you trade a stock for the first time, take a moment to familiarize yourself with the natural “ebbs and flows” of that specific stock.
When it comes to APPS, in hindsight, it behaved as it typically behaves, making a nasty flush to -1 ATR. It was an ugly move to sit through, but in all reality it was a completely normal move for the stock that shook us up. A good example of how a losing trade can offer lessons that will make us more profitable down the road.
· 4/08 SOLD -30 VERTICAL APPS 100 (Weekly) 30 APR 21 82/80 PUT @.66
· 4/19 BOT +30 VERTICAL APPS 100 (Weekly) 30 APR 21 82/80p @ 1.65
· NET P&L = -$2,970
AMZN Put Credit Spread
· 4/22 SOLD -38 VERTICAL AMZN 100 21 MAY 21 3500/3490 @ 6.75
· This trade is still open
For AMZN, the weekly squeeze (as discussed in last Sunday’s newsletter) is our favorite setup in the market right now. After a nice dip to the 8 EMA, AMZN has started to form some solid lower time frame squeezes, and this was enough for us to initiate our position (see below).
There’s a lot we have discussed about this trade/setup, but we’ll save that for Sunday’s newsletter, so be sure to keep an eye on your inbox.