I’d like to talk about the events surrounding this chart in some detail:
This chart represents the /ES over the last few days of last week. As most of you know, I did a very uncharacteristic trade and tried to YOLO my way into some profits. Those profits would have actually poured forth copiously if not for my utterly mucking things up. The purpose of this post is to try to make something helpful out of that bungle instead of simply kvetching and declaring, “Wow, am i stupid, or what?” Because there’s truly no point to that.
So to set the scene, here’s what each of the arrows above means:
- Red arrow: on Wednesday, I bought a bunch of SPY and QQQ puts based on the supposition that the CPI might come in hotter than expected. My goal was to make quick profits on a speculative dump in equities. In short, I intended to be in the trade just a matter of hours, preconditioned on a CPI shocker.
- Blue arrow: near the close on Wednesday, the /ES had, in fact, taken a quick and hearty dump, and in retrospect this would have been a perfectly appropriately time to take some quick profits and be done with it. As I later realized, my entry of the trade (red arrow) was ill-conceived, and this unexpected plunge in the /ES was the sort of dumb luck which would have allowed me to escape my poor decision not only unscathed, but prosperous. Yet I did nothing.
- Yellow arrow: this is where I got out (at a loss), having seen my Wednesday night profits long gone. That was bad enough, but then…………..
- Red line: following a quick post-CPI rally, the market fell 80 points (!!!!!!!)
Now I am not hear to point at that red arrow and say “if I had only bought puts at the top and sold at the bottom, wouldn’t that have been something?” Because that sort of hindsight fantasizing is for 11 year old kids.
What I do think, however, is that my fatal misstep was trying to take advantage of a binary event BEFORE the event took place. In other words, what I anticipated might happen – – – – a meaningful drop in equities following the release of the CPI data – – – did, in fact, take place. Yet there was absolutely no reason to put on the risk and nervously wait for the outcome. I could have simply waited until the report came out, let the market digest it, and then go from there.
Wait a minute, you may ask: what if the CPI came out and the /ES gapped down 30 points and never looked back? Well, yeah, then I’d feel like I missed an opportunity because I wasn’t participating. As such, I’d just skip the trade altogether. After all, I am trying to make a contrarian trade here, and the opportunity expressed itself on Thursday morning after the market went UP strongly, providing cheap puts to any takers. If I decided to wait for the report, and the report in fact compelled the market to plunge, then so be it. At least I’d still have all my other (long-term) puts benefiting.
Share your thoughts on this topic, since I and others here would be interested in your perspective. Does it make more sense to wait until after some ‘big news’ comes out for a short-term trade? Having gone through what I went through, I’m inclined to think so, but I could be wrong.
