$25k Options Trading Challenge Blog
Nov 2021: DIA $350 – $351 Bull Call Spread
Markets gapped down big on this day due to a massive knee-jerk reaction on Omicron news. As I have explained earlier, whenever I can lay my hands on ETF like SPY, QQQ, DIA, IWM I prefer them over stocks. These tickers represent the overall market and in a Bull Market, we always get a recovery whether it is a correction or a knee-jerk reaction like this. The only tricky part is that these trades are hard to come by (maybe once in 2-3 months), so whenever they do show up, I make sure that I grab these trades as they always turn out to be winners. You do have to take multiple contracts of these spreads depending on your risk tolerance. I have seen members in our group take anywhere from 6 to 200 contracts of these spreads in their accounts.
Nov 2021: COIN $325- $330 Bull Call Spread
NOV 2021: COIN $325-$330 Call Spread – This is the first trade I have taken on COIN after its IPO. As a general rule, I don’t trade IPO stocks as I am a big advocate of trading stocks with well established trading patterns and some trading history. I have also mentioned in my book that learning the price movement of the stocks in my watchlist by observing them on a daily basis is what makes me see trading opportunities. I only use indicators to confirm my already existing bias for a trade. But the trade idea itself does not come from any fancy indicators or scans but by simply staying in touch with the “personality” of the stocks in my watchlist. I am a computer programmer and creating an indicator or scan is the easiest thing for me, but you will never see me promoting automation when it comes to finding trade ideas. I am just old-school that way.
COIN is a simple mean reversion trade where DI- is curving down after shooting up initially. This is followed by RSI also pointing up. Both of these indicate that the price wants to move up. You will find many examples of these trades in my book too.
Nov 2021: MRNA $225- $230 Bull Call Spread
NOV 2021: MRNA $225- $230 Call Spread – MRNA had a gigantic drop of nearly 40% in a matter of 2 days. This was triggered by Pfizer’s good news and exacerbated further by Moderna’s own supply/chain issues and the fact that their vaccine won’t be approved for teens before the year end. Although this is a lot of bad news, a 40% sell-off is a little overdone and unwarranted in my opinion. RSI has plunged into oversold territory and a bounce is overdue.
Nov 2021: NOC $355- $360 Bull Call Spread
NOV 2021: NOC $355- $360 – NOC had a monster gap down on missed earnings followed by analyst downgrades. My whole trading philosophy revolves around mean-reversion and this includes taking advantage of any kind of market over-reaction. With NOC, the downward pressure started losing momentum as indicated by the shrinking red candles, DI- changing direction and RSI flattening out. The trade has relady started going in my direction and is beginning to look good. PS: For any new members, I am never trying to catch the bottom with my trades and you will find that 90% of my trades initially go against me after putting them on. This is the reason why you will see me reminding our group not to jump at trade alerts the moment you see them. Patiently waiting for a few hours or even a day will give you some really good entries. I recommend that you keep a trade log for 2 weeks and track what happens to a stock after I push out a trade alert and see for yourself if waiting would be more rewarding or not. In this particular case, NOC fell down to $349 before recovering.
Oct 2021: FB $325- $330 Bull Call Spread
OCT 2021: FB $325- $330 FB, GOOG and other social media ad-related companies had a nasty gap down on 10/21 when SNAP announced a huge earnings miss blaming it all on loss of ad-revenue due to IOS 14 privacy related changes. FB did beat eps estimates a few days later and I put this trade based on support around $325. But it kept dropping all the way down to $310 before recovering. The recent reorg and Meta news has turned the tables in our favor and this trade looks pretty decent at this point. Congrats to those who were able to get the trade at lower strikes!
Oct 2021: NFLX $620 – $625 Bull Call Spread
OCT 2021: NFLX $620 – $625 Bull Call Spread – NFLX had blow out earnings, but the stock was slightly under pressure the next day. With most of the earnings trades, you will find some level of judgement and experience coming into play. On any trade that I take right on the day of earnings, it will always come down to watching the price action on that day. I watch the daily candle and see signs of stabilizing before taking these trades. A solid red candle is usually a sign of danger and it is best to wait for another day on those trades. A candle which starts looking like a DOJI with a small body and long wicks are the best indicators of downward pressure dying off. But there is a lot more art than any science to this. You just need to keep watching and learning to develop your own feel for these trades.
