It's that time of the week again. It's looking like our 11-week win streak has finally come to an end. We're on still on track to be green overall on the month despite September being on pace to be worst month of the year so far in the market. So big picture, everything is fine. We just need to come up with a plan to manage our positions and keep the ball moving into next week. Let's talk about how we plan to accomplish that.
The current situation:
I think it's important to view daily performance in the context of a week, weekly performance in the context of the month, and so on. So for a bit of reassurance, this is what September looks like so far.
We're juuuuuuust in the red. Overall though we're -0.38% on the month compared to -7.67% from the S&P 500. That's a phenomenal result on a monthly basis. The best part about the above image to me is the progress we've made in handling a rocky market. January and April were -6.95% and -9.03% respectively. We lost 21.40% and 17.85% in those months. This time around I think we've done a great job as we hover around breakeven. Since May we've actually outperformed by an average of 6.36% per month. That's awesome.
And of course if you really want to take a deep breath, here's our performance against the S&P 500 and NASDAQ since we started publicly tracking our trades in July 2020. We are outperforming both of the indices by over 100%.
There are always some bumps in the road, but the overall trajectory is clear.
Now that we're past the perspective part of the gameplan, let's take a look at what we have to handle:
So a hair under $7,000 in the red. Don't get me wrong, that's gross, but our core positions are actually okay. That figure also includes a $4k loss on a trade with brutally bad luck which was compounded by poor position sizing on our part. Let's go ticker by ticker to talk about how we plan to get this back and reach new highs in our account.
There is one main theme with everything we are attempting to do below. We want to (1) Get our breakeven price down to or below the current stock price, and (2) do so with as small of a position as possible. It's also important to remember that cash-secured puts and covered calls are identical at the same strike. For example, selling a 15p that's in the money is the same exact trade as taking assignment of shares and selling a 15c. I'm going to stick with cash-secured puts this week because (1) it's easier on my buying power, and (2) with the demand for hedges, there is generally a slight put skew, meaning puts are offering slightly more premium than calls. And every cent counts.
Current price: 15.58
Current breakeven: $16.73
As it currently stands we're looking at a -2,070 loss. This is a position that we doubled down on. At the money cash-secured puts next week are offering roughly $0.70. If we kept the current position size of 20 we would need to sell 20 contracts for a $1.03 credit. If we look at the 9/30 16p we can get a $0.97 credit as of market close today. However, I think it might be wise to play a 16.5p for next week and get a little more bullish on it. Here's why:
We have (1) RSI down in the blue at 28.79 and (2) an established level of support at 15.50 from earlier this month. This stock seems like it's begging for a bounce so I want to capture that upside. 16.5p were going for 1.30. Selling 20 would get $2,600 at max profit and put us positive overall over a 2-week stretch.
As far as breakeven is concerned we would need these to be worth $0.27 or less at expiry, meaning that our breakeven is down to $16.23. Not quite back to where it currently is at $15.58, but $0.70 away isn't too bad. This is a stock we're familiar with and the $0.70ish of call premium at the money each week will go a long way if this continues to trend downwards.
Anticipated breakeven: $16.23
Current price: 5.36
Current breakeven: 5.78
This one really started getting away quickly as the market slid. However we're not in too bad of a place on this one. Good candidate for a double-down. We're down $420, 9/30 5.5p are going for $0.30. Selling 20 of those would net us $600 at max profit, which would turn this week's loss into an overall win. These would need to be worth $0.09 or less for us to break even, so our new breakeven price is $5.41. Right about in line with SOFI's closing price. As I type this after hours, it's actually up to 5.42
Anticipated breakeven: $5.41
Current price: 8.59
Current breakeven: 8.79
For how crappy this stock is, the premium is fantastic, and we really won't need to double down at all here. We're down $200. That means we just need to keep the same position size and sell $0.20 of premium. How can we do that?
There are tons of options. You can't go wrong with 8p but I actually like the idea of the slightly more aggressive 8.5p at a $0.42 credit. Will net us $420 at max profit which would flip this to a gain of $220 overall should PTON hold 8.5 next week. We would need these to be worth $0.22 at expiry so the PTON breakeven drops to $8.28. Great example of how effectively you can make a roll when the premiums are nice.
Anticipated breakeven: $8.28
Current price: 20.00
Current breakeven: 20.73
This one moved against us but we scaled into the position as we normally do. As it currently stands that move nets us out to a loss of only $365 (as opposed to the 565 loss on the original position). This is one where I don't feel that we need to increase position size. In fact, we can actually take some off the table here and drop back down to 5 contracts, which is 33% sized. Now the compromise is we'll have to sell a slightly more aggressive strike, but I have no issues with doing that since we'll again have the capacity to scale back in.
Selling 9/30 19.5p for $1.00 will net us $500, taking this trade to a $135 overall gain in a two-week period. We'll breakeven if these contracts are $0.27 or less, meaning our breakeven price is 19.5 - 0.27 = $19.23. Really effective breakeven price management here.
Anticipated breakeven: $19.23
Current price: 7.37
Current breakeven: 7.36
After the dust has settled, this one is... fine? Will look to take profits here and start fresh next week with the 9/30 7p for $0.15
Anticipated breakeven: $6.85
Current price: 3.04
Current breakeven: 3.70
And now we get to the stinker. I'm not even sure what to say about the last 10 days on this one. RSI is in the gutter.
We are currently down $6.80 and the 9/30 3.5p offer $0.50 of premium. This means we would have to sell 33 of them to break even at 5.50. I don't see a reason why not to be honest. This drops our breakeven price down to $3.50 on the dot from $3.70. This isn't the first time either that we've seen this type of behavior from OPEN:
The RSI setup parallels what we saw in June, where it dipped near $4/share before eventually rebounding up above $6. Let's not take ourselves out of the game here yet. Stick with the 3.5p so we can leave ourselves some upside and catch a bounce if we see it. This would be a great one to be on the right side of if it rebounds similarly to how it has in the past.
Anticipated breakeven: 3.50
Current price: 22.38
Current breakeven: 23.75
This is a trade we started a week ago and have rolled so we're going to take a look at this one as a whole. As it sits we're staring at a $1,773 loss with 13 contracts in play. That means if we want to break even next week we'll have to sell something for $1.36 of premium if we wish to keep the same position size. Just as luck would have it, the 22.5p are going for $1.36 on the dot (not a joke). This seems like an easy answer. We have some capital we could deploy here to further lower the breakeven by increasing position size, but remember that one of our main goals was to avoid increasing position sizes tomorrow if possible. It simply isn't necessary here. Slam the 22.5p
Anticipated breakeven: 22.50
Current price: 69.50
Current breakeven: 71
This trade is actually doing a great job putting in perspective just how effective our approach can be. We started this trade a week ago from today, when we sold a 76p on AMD last Thursday for just over $1. AMD was above $76 at this time. We ended up turning a profit there and then roll down to what we see today: a 9/23 72p. Overall the position has lost $87. Whatever. What I think is awesome is that we've effectively stood in the way of this chart:
And basically broken even.
I want to roll our current 72p down and out for a credit if possible, meaning we'll have to roll down to something that offers a 2.50 credit or better. That can be currently found at the 9/30 70p, which is trading for $2.60. This drops our breakeven to $69.27
Anticipated breakeven: $69.27
Current price: 33.32
Current breakeven: 32.32
And to cap it off, we have another stock that has decided to behave so far. U has held the 33 level which we identified very nicely and has set itself up for another profitable week for us. That's $640 in profit from this over the last 2 weeks if that 33 level holds by EOD tomorrow.
For next week I think we go right back to the well. Same position size, similar credit, lower strike. The dream.
9/30 30.5p for 0.60
Anticipated breakeven: 29.90
And with this big downturn in the market, there are several other nice trade opportunities which have presented themselves. I'm tentatively planning to add the following:
-10 MSOS 9/30 10p for $0.35
-5 SHOP 9/30 27p for .70
-10 F 9/30 12.5p for $0.25
That's $950 in potential max profit
We still have cash on the sidelines but until we're able to see some of these other trades reach their conclusions, we want to keep it on the sidelines so that we have flexibility to play defense during the week.
In conclusion, yes, we may have dropped a cool $7k by the time it's all said and done this week. But I think we have a great plan in place to help us recover that amount. What we've set out above looks like this, and carries a base profit of $5,377 (if stocks move neither up nor down next week)
It also features upside to $9,221 of profit if we see a rebound week and these trades all hit max profit.
So while we don't aim to make it all back in one week, our base profit gets us close and our max profit accomplishes that. So despite just how bad things seemed this week, it's nice to know that we do currently have a light at the end of the tunnel. We also have manageable position sizes and cash on the sidelines to further scale in just in case things deteriorate further.
This is just the opening portfolio as well... We have capacity to make more from intraday trades and 0-day SPX spreads throughout the week. We took home $1,800 in profit from those this week alone.
Stick to the plan, and as always, TRUST THE PROCESS.