A few weeks back I was dumb enough to think selling would return to this ridiculous stock market.
I want to catch the next downturn. I think we all do.
Downturns provide opportunities for large profits.
Volatility events have been some of my most profitable times. The hardest part with shorting any market is being patient and strategic.
My gauge to short flashed
I have a few different metrics I monitor to gauge when are better times to short than others.
They began flashing on May 11 and 12, and sirens were going off on the 13th and 14th.
On the morning of the 14th, the market miraculously recovered. I felt like OPEX and VIX expiration would loosen up this market. Alast I was wrong. But, I ended up minimizing my losses from this due to position management.
Position sizing and profit taking
This is why position sizing and profit taking are key to succeeding in overcoming your emotions in the face of an uncertain future.
On May 12, I put on 100 SPY July 17 puts at the $110 strike for $0.03 per contract, totaling $300 (small bet).
On May 13, I took off 20 contracts at $0.06, for a total of $120. That was a 100% profit from the previous days price. Now, my cost minus proceeds received from this sale is $180 ($300-$120).
On May 14, I took off 20 more contracts at $0.10, for a total of $200. That was a 233% profit from the previous days price. Now, if I take the $180 above, and take off the $200 here, my cost minus proceeds now equals -$20 ($300-$120-$200). This means my remaining position is risk-free.
Risk-free? No way…
Yes way. I had 60 contracts left that could literally expire worthless, and I would have still made a profit on the entire trade. This is why it’s important to take profits along the way on any position you’re playing
Turned out I was wrong. But I played my signals, managed around the situation, and came out with a small profit (which actually turned into a small loss because I later added to it…).
But…I ended up with a smaller loss because I managed around an unknown future. At times in the past, I would’ve ridden the entire trade from top to bottom and loss damn near my full investment.