Taking profit on ascending triangle breakout trade in choppy market

General market $SPX continued to drift down in the last 3 weeks while Nasdaq fell below its 50DMA this week and it made a lower high/lower low bearish pattern in last 4 weeks. In this choppy market environment, my trading style requires low market exposure and lower number of trades to control risks.

Today, market is rebounding up with lower volume. My ascending triangle breakout trade on C diagonal spread showed some profits after the price of C got close to target price of $69.19 in one month, which was much faster than expected. Considering I have to take a multi-week vacation and the choppy market, I decided to close this positional trade for an acceptable profit.

Also on yesterday, the short call July 7 $244.5 on SPY reached $0.02 to create a good profit as $SPY moved sideways most of time, as shown in the chart below. So I bought it back and sold a new July 28 $244 call for a credit of $1.02. I plan to hold this long term diagonal unless SPY 10 week EMA crosses down 40 week EMA.

Now, I have closed all of my near term trades in preparation for the vacation in which I'll have much less time to watch over market. The remaining open positions are longer term and I'll continue to sell calls or buy protective puts should the market turns bearish.

Reducing bullish positions amid weakening market postures

QQQ had turbulent 4 days after I uncovered its short call on last Friday June 23. On the subsequent Monday of June 26, QQQ presented a bearish dark cloud cover candle and fell hard for the next day. It tried to rebound on the 3^rd day /w lower volume. On this 4^th day, it got hammered again on high volume and undercut the support line around $137.

Looking at other QQQ chart indicators that I use typically, MACD turned down for the again but the new high – new low indicator is still up. Since QQQ showed me the bearish chart pattern, declining MACD and the distributive volume behavior, I decided to sell to close my QQQ September 29 $135 call in my shorter term trading account today for $5.73. For my longer term trading account, I sold the July 21 $140 call for $1.01 against the long option.  The short call strike had Delta around 0.30 which reduced the position delta as a hedge procedure.

 

On the SPY side, it was sold off today too. However, it had not broken down the lower support line of the up-trending channel yet. I have a July 7 $244.5 call which still has a value around $.20. I plan to roll down if SPY continues to fall tomorrow. It’s not a complete market plunge as the financial ETF’s XLF/KRE did rise.

Citigroup popped out of recent range along with its peers in high volume. I rolled up the July 7 $66 call to July 21 $69 Call for a debit of $0.94, rather than make it naked. My thought was that the weak market may limit the rise of financial stocks as well.

For MU diagonal spread, I exited the position for a credit of $5.32 two days ago on Tuesday June 22, after it touched the recent high and pulled back. My rule is to exit before its earning’s announcement which happens to be today. This rule is used to reduce risk of my portfolio.

For EEM, it broke out of resistance on Monday, June 26. I bought back the short call July 7 $41.4 for $0.60. Since that, it pulled back but the MACD hasn’t dropped for 2 days in a roll yet. I may have to short another call if EEM price drops tomorrow.

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.

Stock	Existing Position	Note
SPY	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.
QQQ	Long Sept. 29 $135 Call	Uncovered short call on June 23
MU	Long Oct 20 $27 Call, Short July 07 $33.5c	Sold short call on June 15 for $0.83 as Nasdaq sold off.
EEM	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.
C	Long Sept. 15 $60 Call, Short July 7 $66c	Sold short call on June 15 for $0.54 as Nasdaq sold off.

Closing Trades to Take Some Profits as Market Broke above Upper Boundaries

The stock market continued to show bullish strength today by crossing the 2 month long upper line of the up-trending channel by SPY & QQQ and above the upper Bollinger band, as shown in the charts below. The NYSE & NASDAQ trading volumes were lower than those in yesterday. It was a difficult time to take profits since there were no visible signs of market weakness based on price patterns.

 

However, the exit rule of my diagonal spread for my positional trades was met today for some of my positions. Basically, the rule specifies that when the Delta of the long option exceeds 0.80, the diagonal spread can be closed for profits for positional trades and rolled out for longer term trades.  The high Delta value and the crossing of the upper boundaries made me to decide to close some SPY & QQQ positions for profit. I’ll wait for a few weeks to see if there are new entry points on these ETF’s and manage remaining positions as market evolves.

The entry, rolling adjustments, and exits of the QQQ December 29, 2017 Call which was a position in a different account from the last post is shown in the chart above. The summary of the QQQ diagonal trades is listed in the table below. In reviewing the trades, it’s obvious that I had held the short calls for too long such that the overall profit was 28% only while the targeted profit could be 50% or more.

Date	Spread	Side	Exp	Strike	Price	Net Price	Total Cost
4/5/2017	SINGLE	BUY	29-Dec-17	127	10.63	10.63	10.63
4/12/2017	SINGLE	SELL	5-May-17	133	0.79	0.79	9.84
4/24/2017	DIAGONAL	SELL	19-May-17	136	0.58	-1.14	9.26
4/24/2017		BUY	5-May-17	133	1.72	DEBIT	10.98
5/1/2017	SINGLE	BUY	19-May-17	136	1.81	1.81	12.79
5/17/2017	SINGLE	SELL	9-Jun-17	139	0.83	0.83	11.96
5/25/2017	DIAGONAL	SELL	16-Jun-17	143	0.49	-1.92	11.47
5/25/2017		BUY	9-Jun-17	139	2.41	DEBIT	13.88
6/2/2017	DIAGONAL	SELL	29-Dec-17	127	18.03	16.86	-4.15
6/2/2017		BUY	16-Jun-17	143	1.17	CREDIT	-2.98

In the meantime, I decided to keep 1/3^rd of the QQQ diagonal spread for longer term trade. Since the December 29, 2017 $127 Call has its Delta about 0.82, I rolled out 3 more months to March 16, 2018 and raised strike price to $136 which had Delta around 0.65. As explained in the previous post, the rolling reduced the overall position Delta. I might need to adjust the short June16 $143 call if QQQ keeps rising.

On the SPY bullish positions, I sold diagonal call spread September 2017 $229/June 2017 244.50 Call for $15.31 as the long call had Delta over 0.80 as well. I’ll analyze the SPY diagonals in the future in a trade review.

My other diagonal call spread on MU was adjusted as well since the short call Delta reached over 0.65 and MU price action was strong. Thus, I bought back the June 9 $30.5 call and left the October 20 $27 call which was bought around May 11th naked. The MU stock chart is shown below.

Adjustments of Diagonal Spreads to Meet New Market Outlook

Yesterday, the stock market delivered the 6^th consecutive rises, accompanied by higher volume. It also broke prior high to signal the resumption of the powerful uptrend.

Both QQQ & SPY showed their 2 month long uptrend channel lines, after a confirmation by rallying from the lower channel line 6 days ago. If the momentum is strong, I think the market indices will grind higher along the upper trending channel line as shown below, with some minor pullbacks along the way.

After hedging positions with short calls on the scare of presidential impeachmentsell-off 7 trading days ago as described in a previous post, the stock market started rising gradually, with declining volume for 5 days.  Therefore, I did not uncover the short calls until the market’s rise with higher volume yesterday.

Typically, market would pullback after 8 days for consecutive rises. On the 6^th day of the continuous rise, I decided to roll up and out the short calls for most of my diagonal call spread positions expiring from June 9 to June 16. The new short call options have 22 days to expiration and Delta around 0.25 as usual.

Due to the large price hikes, the diagonal spread positions were on the border of Delta inversion before the rolling. It meant overall diagonal position could not profit even though there were good amount of price increases at the inversion day. 

The new positions are summarized below for reference.

Stocks	Existing Calls	New Short Calls	Notes
NFLX	Jun9 $162.5; $1.63	Bought back for $4.20	Left naked call Sept15 $145 as it broke out $161 resistance with high volume
EEM	Jun9 $42; $0.27		No change as it approached resistance level 41.7 without stronger relative strength
MU	Jun9 $30.5; $0.34		No change as it approached resistance level $29.5
SPY	Jun9 $239.5; $1.22	Jun16 $244.5; Rolling deficit of $2.43	Used short call with the expectation of a pullback after a 6 day rise in a roll
QQQ	Jun9 $139; $0.83	Jun16 $143; Rolling deficit of $2.04	Used short call with the expectation of a pullback after a 6 day rise in a roll

The trading plan is to uncover the diagonal spread if the market tries to pull back and rally from there again. If market continues to grind up, I’ll continue to roll up and out for the diagonal spread.