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As a new week approaches, I am certainly excited that quarterly expiration week is done and over with. Like it tends to be, last week was nothing but chop, and the iron condor we opened on Monday was perfect for taking advantage of the messy price action.

While I would personally love to see the market show signs of momentum this coming week, please keep in mind that just because quarterly expiration is over it doesn’t mean the market can’t continue to chop. So while there is the potential that we see the markets get back to business and grinding higher on momentum, there is also the potential for a repeat of last week’s sideways action. With this being said, I plan to hold on tight to our current open long positions, and would actually like to sell another iron condor on SPX to take advantage of any potential chop.

WEEKLY IRON CONDOR TRADE

Just like last week, I will look to sell an $SPX iron condor for this coming Friday’s expiration and would like to obtain a 4-1 risk:reward ratio or better. As for a strike selection, ideally I would like to have our short strikes on the put side under the 50 SMA, and on the call side I would like our short strikes above the previous all-time high and above the psychological level of $4000.

Based on the structure of the market and the pullback that we’ve seen from $VIX, I don’t think the market will roll over this week, though of course it is always possible. On the flipside, should the market rally to a brand new all-time high by Friday, we may end up taking a loss on the iron condor, but that should be more than offset by the positive gains our long positions would bring in. I love opening iron condor‘s with this mindset. If we do nothing but chop, we will bring in some nice weekly income. If the market explodes higher, our long positions should be thriving and moving our equity curve higher.

As for the management of the iron condor, a reminder from my experience last week; take the 70% of max profit and run!!!

 Keep in mind, we have a lot of Fed-Talk this week, and that typically can result in a choppy environment. Just like last week, chasing intraday directional moves may prove to be difficult, and the Iron Condor might once again be the go-to trade!

Quarterly expiration week is finally over! As it tends to, this week was nothing but a total chop fest of ups and downs that ultimately brought the market nowhere. For those unwilling to resist the temptation to chase directional trades, this was likely a difficult week. For the flexible traders looking to take with the market has to offer, our iron condor turned out to be the perfect trade for the week, just as we planned.

Early this morning we were able to buy back our iron condor for a little more than 70% of its max profit. Though it can be easy on a Friday to “call it a week” after closing a profitable trade, the week isn’t officially over until we do our trade review, and cover what we did well and what we did wrong. 

From my perspective here are a few key takeaways from this week.

THE GOOD

As for what I did well this week, I took what I believed was the trade that offered the best chance of profiting during the quarterly expiration, which was the iron condor. We took what the market had to offer, avoided chasing the back-and-forth chop, and were able to get a profitable trade under our belts. We created a game plan, we executed on that game plan, and we were rewarded by “taking what the defense gave us” as opposed to chasing meaningless price action.

THE BAD

On the other hand, a little bit of greed led to me having to sit through a complete drawdown on our iron condor, and if it weren’t for a nice bounce Friday afternoon it would have turned into a losing trade. The frustration never comes from a trade not working, as that is simply part of the game. What is always incredibly frustrating is when a position is sitting at about 70% of max profit, and I decide to hold on for just a little bit more. The little bit of extra profit is somewhat meaningless in terms of growing the account, and all I do is rob myself a peace of mind when winning trades potentially turn into losers.

Buying back the condor for 80% of max profit sounds better than buying it back for 70% of max profit on paper, but truthfully the extra 10% is not worth the potential risk of the markets turning against you and that trade turning into a loser. I’m thankful for the bounce and I’m thankful that ultimately the condor turned out to be a profitable trade, but the foolish decision to hang on for a little bit of extra profit, when we could have closed it on Thursday, is a recurring mistake I am making this year. I’ve done it twice on both Amazon and Nvidia, refusing to take the 70-75% profit and ultimately had to sit through weeks of drawdown. Again, they turned out to be profitable trades, but having to sit through those uncomfortable pullbacks is a sacrifice of peace of mind that isn’t worth the extra reward of a little more profit.

All in all, a profitable week is always a good thing. We played what the market had to offer perfectly and took our low-hanging fruit. For me personally, I am going to start placing GTC orders to buy back spreads at 70% of max profit, and will NOT change those orders no matter how good the setup looks!

To say this week has felt like watching paint dry would be an understatement! As we covered in Sunday’s newsletter, quarterly expiration week tends to be a choppy one, and this week isn’t turning out to be any different. 

 In Sunday’s letter we talked about being a flexible trader, and utilizing the strategies and set ups that will best benefit from what the market is currently offering (or in other words, taking what the defense is giving us). While the $SPX iron condor we opened on Monday Is certainly shaping out to be the perfect trade for this boring week, it’s times like this where your discipline and patience can really get tested. 

 When you love trading, it can be incredibly hard to accept that the best thing to do is to not trade at all. However, what can often be much harder is forgiving yourself for forcing trades in an environment that isn’t ideal. 

  The irony in this for me is that so often, folks tell me that they are pursuing trading to obtain more freedom. They want more time to spend with family, more time to travel and experience the things they enjoy, and more overall control of their day-to-day life. Yet, for many of those same traders, stepping away from the markets can be near impossible. 

 I myself often struggle with the same thing. Even after all the years of experiencing how boring and choppy quarterly expiration week can be, I still find it challenging to toss on the iron condor and step away from the screens for a few days. I know this is best for my P&L, and best for my peace of mind as a few days off can be a much-needed recharge. Even still, I find myself constantly checking the quotes, constantly checking in on “the action” (SPOILER ALERT: there is no action this week!). 

For some it may be due to FOMO, and for some may be due to greed. For me, walking away from the charts can be difficult because I simply love this game. I love watching how things unfold, I love the camaraderie in our chat room and interacting with other traders, I love it all. However, the one thing that has proven to remain true over all my years of trading is at the market isn’t going away. It will be here when quarterly expiration is done, and there is such a bigger likelihood of time spent at the charts paying off once it’s over.

 I’ve learned the hard way that forcing the issue during witching week can lead to trouble, so fighting the urge to place trades this week isn’t all that difficult. It’s tuning out for a few days to allow myself the opportunity to re-charge that isn’t as easy as one would think. As it tends to, thinking about the “big picture” and the long run certainly helps put this all into its proper perspective. Personally I hope to have 40 or 50+ years of trading ahead of me. In all reality, stepping back for a few days isn’t going to kill me or stop me from reaching my long-term goals.

 Remember, while hours can feel like minutes while we’re trading, time continues to go by quickly. Many of us dedicate so much of ourselves and our time to the markets, that we forget life keeps movin’ on around us. Not just during quarterly expiration, but in general, we as traders need to strive for a healthy balance of laser focus and dedication when the market is ideal, and the fortitude to step back for a bit when it is not.

 Accept the environment, take what the market has to offer, and detach when it’s time to detach. Let’s be real, throwing on an iron condor and getting paid by a choppy market while we step away and spend time with loves one’s/doing things we enjoy is a pretty sweet ordeal. Though the game can be tough, never forget how good we have it as traders! 

 As for our $SPX iron condor, we’re in great shape here as the market chops into oblivion. The market offered a chop-fest, and we utilized the best tool to take advantage of just that. We have working orders set to buy back the iron condor for 80% of max profit, so there’s even less of a need to waste time staring at the screens over the next two days!

We’re off to a great start to the month of March, team. Let’s keep it rolling!

A good basketball player has the skill set to do many things, but the discipline and flexibility to take what the defense is giving them. As traders, we must approach this game with the same mindset. We want to develop a set of skills that allows us to profit in a bullish market, a bearish market, and even a choppy market, but we also want to be disciplined enough to remain flexible to take what the market has to offer. Reaching for the “low hanging fruit” is often an easier path to profits than forcing your personal agenda on the market. 

Keeping the above in mind as we head into next week’s trading will be very important. This coming week is the first quarterly expiration of the year in the options market, and this historically results in a choppy, back-and-forth, volatile week for the market. Trying to force the issue with directional trades, (in both directions mind you) can be a difficult proposition with the kind of price action this week tends to bring.

In the spirit of taking what the market has to offer, this is often a great week for selling iron condors on the indexes, looking to benefit from the back-and-forth chop that ultimately brings the market nowhere. With that being said, my major focus this week will be to place one or two high probability iron condors on the $SPX that offer an attractive risk: reward.

My reasoning for choosing to pursue a condor on SPY rather than on QQQ can be seen in the charts below. If you compare the structure of the tech index to that of the overall market, things are still a little bit sketchy for tech trading under its daily 21, which could potentially lead to more violent downside.

In comparison, the SPY is back above it’s 21 EMA, resting in a new daily squeeze and looks like a much better candidate for avoiding further selling pressure. With the iron condors we are looking for chop, and the SPY has a structure here that supports the idea of chop.

I’ll be looking to sell this iron condor for this coming Friday’s expiration, and I’m looking to obtain a 4 to 1 risk:reward ratio at the very least. As for strike selection, we must take into consideration that the expected move for SPX into Friday is about $60. Therefore, to avoid getting caught up in chop, I will be aiming to sell short strikes further out the money than the expected move so long as I’m able to obtain an ideal risk reward.

It’s worth noting, that while quarterly expiration week is historically a choppy one, we know that anything can happen in the markets. So while playing in an iron condor very well may be the perfect trade for the week, we must be prepared for anything and be ready to make adjustments if necessary as always! 

Be prepared to see A LOT of big intraday swings over the next few days, and please be cautious about chasing them. Should this quarterly expiration week unfold like the ones before it, chasing those intraday moves can lead to nothing but headaches as they tend to be nothing but “head fakes”. In terms of probabilities, the iron condor will likely be our best chance of pulling profits out of the market this week. With that being said, find peace of mind in knowing that while we sit back and let our options decay, someone else out there bought those options and are paying the price! Money will shift from the accounts of the impatient traders into ours, and that is a beautiful thing

What a wild week for the market it has been! The selloff in tech continued (in an ugly fashion), while other sectors like energy and the financials saw enough strength on rotation to keep the $SPY from flushing like $QQQ.

 The week turned out to be a profitable one, but before we jump into the positives and what I did right, let my mention a few of the things I did wrong:

 While my trades went well, my discipline outside of the market left a lot to be desired last week. My sleep schedule was awful, often waking up around 2:00-3:00am after only a handful of hours of sleep. I feel this is important to mention, because sleep & nutrition plays a vital role in our ability to perform at our best.

Personally, when my sleep schedule is out of whack, I feel a huge difference in my level of focus & energy. Low energy and a foggy mind are not a good combination for operating at peak performance. It may have been a profitable week, but it’s things like this outside of trading that I need some major improvement on. My goal is to become the best trader I can possibly be, and things like sleeping and eating right are an important piece of the puzzle that shouldn’t be ignored.

 Now, onto the positives. By focusing on the basics of the game last week, we were able to string together a handful of really nice trades. For open & closed trades taken last week, I finished the week +$7,900 in my TOS account. While those are good numbers in my book, what’s more important than the profits is the execution that leads to them.

 As you know, my favorite trades are selling put credit spreads on stocks in a tight squeeze with a bullish structure. While that tends to work like a charm during a low-volatility environment, even the best looking squeezes can fall apart when volatility spikes like we saw last week. Once the $VIX is ramping, and the indexes are trading under their daily 21-period EMA, I like to shift my focus from trading squeezes, to what we can call RTM (reversion to the mean trades).

In a high-volatility environment, RTM trades offer a great opportunity to profit on the swings from “one extreme to another”. Remember, whether we’re trending to the upside or to the downside, all the market typically does is move 2-3 ATR away from it’s 21EMA, before reverting back to it. Once $VIX is spiking and the indexes are under their daily 21EMA, here’s the playbook:

• Short the rejections of the 21EMA, take profits at 2-3ATR to the downside
• Once 2-3 ATR under the 21EMA, look to play the market long for a reversion back up to the 21EMA.
• Once back to the 21EMA, UNLESS WE CLOSE ABOVE IT, lock gains on the long position and look to short once again.

Rinse & repeat, my friends. The concept of RTM is a basic one, but one that is crucial to understand in order to reach consistent profitability in any environment. Without this understanding, you run the risk of unknowingly getting long or short at some of the worst spots possible. Following the ebbs & flows of the market, here’s a breakdown of the trades we opened & closed last week:

TRADE 1: Long at the extension

–   On Friday 2/26, the market was trading at 2-3+ ATR under the 21ema going into the close. This means there was now a growing probability that we would bounce back up to the 21ema over the next few days. For this reason, we sold a pcs on $GOOGL, expecting it to move higher early in the coming week with any strength in the market.

–   On Monday 3/01, the markets ran hard, with $QQQ making it all the way back up to its 21EMA. With the strength in tech, $GOOGL made a solid push that allowed us to buy back our put credit spread at 50% of it’s max profit

TRADES 2-4: Short the rejection

–   $QQQ rallied all the way back to it’s 21EMA on 3/05, but failed to close above it with the histogram remaining bearish. Because of this rejection at the 21, we knew there was a good chance we would once again drop another 2-3 ATR to the downside, so we sold call credit spreads on $NDX, $AMZN, and $QQQ.

–   Over the following days, the market gave us our 2-3 ATR move to the downside, and we bought back our call credit spreads for some really solid gains.

These were 4 low-stress, profitable trades that we were able to take advantage of by doing two things well:

1.   Focusing on the basics
2.   Respecting the current market environment

 We all have our favorite setups, but part of being a good trader is knowing that your setups may thrive in one environment, and suddenly stop working in another. Respect the environment, focus on the basics, and take advantage of what the market is currently offering. If you force yourself and your strategy on the market, you’re in for a rough ride. If you let Mama Market lead, you’re making things much easier on yourself!

With a volatile market like the one we’ve seen over the last couple of weeks, many traders are at risk of falling victim to their emotional weaknesses. Folks don’t seem to bat-an-eye when the markets are endlessly pumping higher, but once some volatility and selling pressure comes knocking, emotions tend to rise for the worst. While this is the case for many, it certainly doesn’t have to be that way.

I used to be that trader. That trader that would lose it emotionally and give back significant progress anytime the markets slightly corrected. The biggest problem with this is that the markets correcting at some point are inevitable. It would be impossible to create a steadily rising equity-curve in our accounts if every time the markets got soft, we gave back significant gains.

The emotional ups & downs that can come from that kind of self-inflicted pain are exhausting and can leave us feeling defeated. After experiencing my fair share of that self-inflicted pain in the past, I have rules in place & have developed a much stronger control of my emotions to ensure I no longer experience that mental-hell every time the market drops.

So, what’s allowed me to comfortably sit through the recent flush, even as swing positions have gone against me?

• • Proper position sizing
    •  Proper position sizing takes care of a lot of problems. Never risking more than you’re willing to lose makes sitting through drawdowns and volatile markets much easier, as you’ve already accepted the potential risk
    • Aside from $AMZN, all my other swings are below-average position sizes due to the extended structure of the market at time of entry. Because of this, even as these positions come against me, I’m not putting a dent in the gains closed when the market was pumping

• • Adequate time until expiration on my swings 
    •  It’s markets like this that make me value having ample time until expiration on my swings
    • When swings work immediately, I tend to think “I wish I went closer to expiration” so I could collect more of my max profit quicker. When the markets get volatile, I find a lot of peace-of-mind knowing my swings have plenty of time left, making it so much easier to sit through temporary drawdowns & placing potential hedges. 

• • A probabilistic mindset
    • Trading is simply a game of probabilities
    • When we focus on trading clean setups, with a bullish structure that fits all of our criteria, we put the probability of profiting in our favor as much as we possibly can
    • However, the numbers within the probabilities tell us the ultimate truth about trading: losses are part of the game 
    • The best trader in the world may have a 70% win-rate. Even so, he or she is likely to lose at least 30+ trades out of every 100 placed. That’s a likely reality and outcome, as the numbers don’t lie. That’s what the probabilities tell us to expect
    • While we can focus on setups that put the odds in our favors, we have absolutely no control over the order in which the probabilities play out. We may profit on 60 out of 100 trades, but the order in which those wins & losses will playout is completely random 
    • With all of this being said, losing trades are a part of the game (and a guarantee based on probabilities) that I have learned to comfortably live with. 

• Thinking forward
• I hope to have 50+ good years of trading ahead of me
• 50 years x 50 weeks of trading per year = 2500 weeks
• 2 “sloppy” weeks represents 0.08% of the trading weeks I have ahead of me. Will these last couple of weeks really matter 2,498 weeks from now? Nope!

Position size properly, focus on high-probability setups, and let the order of the probabilities playout as they may. Take any lessons that volatile markets have to offer as an opportunity to trade better for your next 2,000+ weeks.