Thursday, December 3, 2009

What Ever Happened to Those Trade Journals...

When I originally crafted the idea to offer up occasional trade journal posts, my intent was to do so every few weeks. Well, every few weeks has turned into every few months, as these posts have received relatively scant attention from myself. Since today's trading day has been like watching paint dry and I find myself rather uninspired to delve into new subject matter, why not resurrect the trade journal angle and review a recent completed trade (click image to enlarge).

[Source: EduTrader]
Nov 11th
Trade Setup: After forming a double top and breaking below the 50 day moving average, RUT proceeded to rally back up to the underside of the 50 MA and intermediate trend line. Due to these bearish signals I was of the opinion that RUT would not break above its highs around 625.
Strategy: Sell a short term, OTM December 640-650 call spread.

Net Credit: $1.00
Max Reward: $1.00
Max Risk: $9.00
Probability of Profit: 1-.15 = 85%

Target: Close the spread at $.20 or better.
Trade Management: Close the spread if RUT breaks above resistance (625).
Did I plan my trade and trade my plan? yes!

In hindsight I could have waited until the 16th and sold the call spread for about $.50 more (1.50), however I had a pretty solid bearish setup when I entered so I'm satisfied with the outcome. If you're of the opinion that small cap stocks continue to underperform, the recent four day rally we've experienced could be looked at as another opportunity to sell call spreads.

For other related posts, check out:

5 comments:

tim said...

a report on a real trade turns out is really helpful. thanks.
I almost put the 640-650 BCS on the RUT on 11-16 but was waiting for it to come up and touch a trendline at about 612. Missed that trade.

I put RUT Jan 640-650 on Friday as it hit the 11-16 high and then market again came down hard with SPX unable to stay above 1113 once again.

It seems a little early for Jan. but I thought that the setup was more important than perfect theta timing.

For three months I keep wanting to do iron condors, not just BCS, but keep anticipating hard sell off which does not occur.

any thoughts
thanks again for your blogs

Tyler Craig said...

tim,

The entry at Friday's highs doesn't look too bad. As for the comment on whether or not it's too early for January, I would say that it is NOT too early and concur with your thoughts on the setup trumping where we are in the expiration cycle. I've got a few more thoughts that I'd actually like to share in a blog post. Probably tomorrow.

tim said...

Looking forward to your thoughts on the RUT.
It has been relatively weak for some time, but lately it seems to be preforming comparatively better than the other indexs. The INDU, SPX, NDX are up modestly since the Dubai lows, but the RUT up a good deal. Today the other indexs all closed below Fridays lows, but the RUT is in the middle of Fridays candle. Is this connected to the recent strength in the dollar, and if so since the dollar has broken a key trendline, can we expect the RUT to stay relatively strong for now.

Tyler Craig said...

Tim,

Yeah I've noticed the short term rel. strength of the RUT over the last few days. As to why it's relatively strong.... well, beats the heck out of me. I don't tend to worry too much about the 'why' as much as the 'what'. The problem with the strong dollar/strong RUT argument is the fact that virtually all of 2009 has seen weak dollar/strong equities. So you would assume that the dollar strengthening is potentially bearish for the equities market. If the SPX and NDX start to tumble, the RUT is going to have trouble continuing to rise.

Unfortunately my crystal ball on RUT is fuzzy. I'd watch 606 and 625 as resistance on the upside.

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