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The Right Trade for the Environment

Quarterly expiration week is finally over! As it tends to, this week was nothing but a total chop fest of ups and downs that ultimately brought the market nowhere. For those unwilling to resist the temptation to chase directional trades, this was likely a difficult week. For the flexible traders looking to take with the market has to offer, our iron condor turned out to be the perfect trade for the week, just as we planned.

Early this morning we were able to buy back our iron condor for a little more than 70% of its max profit. Though it can be easy on a Friday to “call it a week” after closing a profitable trade, the week isn’t officially over until we do our trade review, and cover what we did well and what we did wrong. 

From my perspective here are a few key takeaways from this week.

THE GOOD

As for what I did well this week, I took what I believed was the trade that offered the best chance of profiting during the quarterly expiration, which was the iron condor. We took what the market had to offer, avoided chasing the back-and-forth chop, and were able to get a profitable trade under our belts. We created a game plan, we executed on that game plan, and we were rewarded by “taking what the defense gave us” as opposed to chasing meaningless price action.

THE BAD

On the other hand, a little bit of greed led to me having to sit through a complete drawdown on our iron condor, and if it weren’t for a nice bounce Friday afternoon it would have turned into a losing trade. The frustration never comes from a trade not working, as that is simply part of the game. What is always incredibly frustrating is when a position is sitting at about 70% of max profit, and I decide to hold on for just a little bit more. The little bit of extra profit is somewhat meaningless in terms of growing the account, and all I do is rob myself a peace of mind when winning trades potentially turn into losers.

Buying back the condor for 80% of max profit sounds better than buying it back for 70% of max profit on paper, but truthfully the extra 10% is not worth the potential risk of the markets turning against you and that trade turning into a loser. I’m thankful for the bounce and I’m thankful that ultimately the condor turned out to be a profitable trade, but the foolish decision to hang on for a little bit of extra profit, when we could have closed it on Thursday, is a recurring mistake I am making this year. I’ve done it twice on both Amazon and Nvidia, refusing to take the 70-75% profit and ultimately had to sit through weeks of drawdown. Again, they turned out to be profitable trades, but having to sit through those uncomfortable pullbacks is a sacrifice of peace of mind that isn’t worth the extra reward of a little more profit.

All in all, a profitable week is always a good thing. We played what the market had to offer perfectly and took our low-hanging fruit. For me personally, I am going to start placing GTC orders to buy back spreads at 70% of max profit, and will NOT change those orders no matter how good the setup looks!