A perfect week

As it is always said, trading is an art not science because no one can have any certainty on any short-term market movement. Having said that, sometime it also requires some logic thinking in order to prevail. This week is a perfect example with some perfect trading I have made. You see, we entered this week with a widespread understanding that there would be a lot of uncertainty in the coming week due to the Trump-Xi summit tomorrow that is closely watched by the whole world. No one can be sure what the result will be and virtually everyone may agree that it will likely be a binary event, namely a disaster for the market if the meeting turns out to be a total failure or a good rally if it turns out to be a successful meeting (either with full trade deal agreed upon which is very unlikely or an agreement to continue to negotiate with good faith with a set deadline which is more likely in my opinion). With this kind of very clear uncertainty in place, just with a little bit logic we should be able to guess how the market in general should perform this week. Logically professionals won’t bet heavily in either direction, ie. too bullish which may turn out to be a disaster or too bearish which may miss a strong rally opportunity. That’s why I told my group that this week we would likely see a tight range bounded market, especially I didn’t see a chance for a strong rally towards the end of the week. For traders, I said selling calls and selling puts for a specific range would likely be a profitable strategy. I specifically offered two examples for my friends:

• For Amazon that started the week around S1910ish, I didn’t see a high chance for it to go much beyond $1920. So selling its weekly calls for $1920 could be a good idea.
• For Apple that started the week around $200, I also didn’t see much upside room for this week based on its short-term TA, so selling its weekly $200 calls was also a reasonable trading idea.

I put my money where my mouth is and it turns out both are indeed very profitable trades for the week! For Amazon, it was even better for me as it nosedived on Tue, dropping below $1880 for whatever reasons, which made my $1920 call shorting position (bearish spread) immediately very profitable. It would be silly to stay with it when about 80% of the potential max gain was already made in just one day. As a trader, I just couldn’t resist any potential opportunity either direction. As I said regarding my range bound logic, I didn’t believe Amazon would just crash without any specific reason for the week and its TA suggested it should bounce back in the next few days, So I made a weekly put selling for Amazon, betting it would recovered from the Tue harsh selling. Lucky me, it turned out to be another very profitable trade. So I made some good money from Amazon on both directions, in addition to the profitable Apple bearish trade.   

So what’s next? Well as I said, no one has a crystal ball but I’m willing to bet the chance is higher for a more positive than negative result from the Trump-Xi summit over the weekend. If so, we will likely see a good relief rally. This is what I’m more leaning towards for next week. Let’s say it turns out to be indeed a positive result and we do get a substantial rally next week or even after, can we just be relaxed to think that good days are ahead for stocks? Not so fast and history has told us we may soon see some quite nasty selloff in the next two months. But that’s the topic for another day. Let’s first enjoy the weekend and watch what will happen in Japan tomorrow.

By the way, not sure if anyone followed my lead to short ROKU (see my post last week on it). If so, you should pat yourself on the back as it has started almost immediately a nosedive with a haircut about 15% in just one week. While I don’t think its correction is already done, such a fast decline could trigger some bottom-fishing FOMO and I won’t be surprised to see some rally attempt in the next week or two, especially if the whole market is cheering with a good relief rally. I closed my short position for ROKU for now with about half of the max gain I was expecting. Depending on how it may behavior from here, I may start to short it again!