Sunday, June 25, 2017

Trades for the last 2-week side-ways market and current outlook

In the last couple of weeks, the stock market experienced a NASDAQ sell-off, followed by some recovery days. The SPX moved sideways mostly. Overall, the general market looks bullish as the up-trends are still in place. Even with the 2-day big Nasdaq selloff, the NASDAQ New highs – New lows index remains rising.

As explained in my post about my usage of this secondary confirmation index before, I decided to uncover the QQQ July 07, 2017 $142 Call for a price of $0.98 on Friday, June 23 based this and the following bullish signals.  The chart indicated rising MACD and QQQ also successfully bounced off the support line around $137 two times.

Looking further back on Monday, June 12, QQQ continued to sell off after its prior Friday’s plunge. The short call of June 16 $143 sold on May 25 as a hedge reached most of its profit as its price reduced to $0.12. Therefore I rolled it out and down to July 07 $142 Call which was sold for $0.84 as shown in the chart below.
Now QQQ sits at the same price level as that in 4 weeks ago. I’m glad that I followed my rules to take some profits off the table and used short calls to hedge for a possible change of uptrend in this period. It was not easy actions for me since they were done in the middle of strong uptrend.

Taking profits for positional trades are necessary and takes the greedy part of trading psychology out of the trading process.

However, I was not as quick on the NLFX & MU trades as I did for QQQ before the Nasdaq sell-off. A couple of days before the sell-off, the Delta’s of long calls on these stocks reached slightly higher than 0.80 as well.

My trading rules specify that rolling for long term trades and closing for near term position trades when the Delta reaches over 0.80, not necessarily at 0.80 though. I was hoping to get Delta’s rising to 0.85+ level amid the strong market trend. So I did not take any profits off for these positions and saw the profits evaporated during the sell-off.

On Thursday June 15, NFLX dropped intraday to undercut the prior 3 day lows which caused me to sell the long call of September 15 $154 for $13.2. It was bought on April 25 for $15.60. So the net loss excluding short call and its rolls on this position held for about 2 months is $2.40, down 15%. I’ll have to calculate the actual loss later when time allows.

At present, I still have the following open positions. I plan to close MU before its June 29 earnings announcement date this week as my rule does not allow holding the earnings date in general.
Existing Position
Long Jan. 19, 2018 $220 Call LEAPS, short July 7 $244.5 Call
Sold short call on June 15 for $0.76 as SPX & Nasdaq sold off.
Long Sept. 29 $135 Call
Uncovered short call on June 23
Long Oct 20 $27 Call, Short July 07 $33.5c
Sold short call on June 15 for $0.83 as Nasdaq sold off.
Long Jan. 19, 2018 $38 Call LEAPS, short July 7 41.5 Call
Sold short call on June 15 for $0.25 as Nasdaq sold off.
Long Sept. 15 $60 Call, Short July 7 $66c
Sold short call on June 15 for $0.54 as Nasdaq sold off.

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