On Sunday, in a protected post for subscribers, Dr. J outlined a potential market trade *IF* price returned early in the week closer to the lows from Thursday or Friday of last week (October 11th and 12th). The ideal BUY zone would be closer to SPY $273. The market did NOT give that opportunity, but did drop into the low $274’s at the close of trading on Monday. If you took the trade at any time on Monday, you were rewarded with a 2% up day today. The target of that trade was also discussed in the protected post and was in the $279-285 range. We reached it today and profits on some or all of the trade should have been taken.
How did I play the trade? I used 10/22 Expiry ATM (at the money) SPY call options purchased on Monday and closed 75% of them on Tuesday. A 30% profit was recorded on the initial half taken off the table near SPY $279 and a 61% profit on 1/4 of the full position (one half of the remaining) to have closed the trade at a 5% return on capital regardless of what the last 1/4 position is priced at over this week prior to expiration. Currently (at the close of business on Tuesday) the last group of options are priced at an 86% gain. Priced today, the trade has a 50% return on capital invested. If price pushes up into the $285-286 range as outlined in the subscriber post, I’m confident I will have no more than 1 or 2 option contracts remaining on the books.
Why options in this case? Simple. Defined risk. Going into a trade that had the potential to go against me quickly as a market continued to sell off meant that taking an option trade defined the amount of capital at risk as being NO MORE than what was paid for the options (and likely less if the position was closed once the market sold off enough to indicate the trade idea wasn’t effective). If the actual SPY ETF were purchased, the risk is technically unlimited, but a maximum of $6 risk was outlined in the post. So far, the ETF has only gained between $5 to $7 per share.
Have you considered a subscription to my thoughts? I am not posting this trade to brag. I am posting this because if you were shocked or confused that the markets pushed 2% higher today, then perhaps having my thoughts delivered to your inbox might be helpful to your financial health in the future. Thanks for visiting and consider referring a friend to the site, I’d appreciate it.