Market Update / SPY Call Follow Up

Yesterday's SPY weekly call (which I haven't messed with weekly calls in a good long while) Options Trade Idea: Very Speculative, SPY $185 Weekly Call @ 1:37 p.m. afforded me a nice gain as it was bought at the right place on weakness in price, but some short term 3C strength which is why I used the weekly rather than an April monthly.

This is the goal in our transactions, it's emotionally challenging to buy what looks like price weakness, but we have an edge in seeing the true underlying tone of trade. In this way we can get the best prices and lowest premium on options while also lowering our risk profile, even though it feels wrong to buy weakness, it's not JUST the weakness we are buying, it's the 3C strength that MUST accompany the weakness.

This 1 min 3C chart of the SPY is backed up to 10 a.m. this morning to show yesterday which started off strong and quickly faded, but as it was fading (price weakness)  we saw a strong underlying short term accumulation signal in the rising 3C signal,(underlying strength), this is the ideal entry for a call position.

We also match our trade and use the right tool for the job, April monthly options would not have given the return that weekly calls gave and considering the set up we had in place, the right tool or the most optimal tool for the job was a weekly call.

Here's the P/L for a position that was only exposing us to the market for a mere 3 or so hours, where can you make a gain like this on your money in 3 hours?

The P/L...

At a fill of $2.04 and cost basis of $1.32, this 3+ hour position made a gain of +54%, where are you going to make 54% on your money in 3 hours legally?

I closed the SPY call position after watching this morning's gap up to see if there was any 3C confirmation, as you know, yesterday one of the things I was looking for was early weakness in the market like yesterday, a fade of the initial strength and I suspected that weakness would create a second small bottom or a "W" bottom, that's where I'd add or in this case start a new SPY call position, but we need verification first.

Yesterday's early SPY strength on the open quickly faded.

 This was yesterday's accumulation of the lows, that's smart money buying, that's where we were following them and buying with the SPY weekly option/call.

This morning to the far right on the gap up, you can see there's no 3C confirmation, I gave it a little bit of time to develop and it didn't so I decided to protect those gains and close the call position, wait for a pullback in price and see if we get more accumulation, if we do...WASH, RINSE, REPEAT.

 The longer 2 min SPY chart still has strength so a "W" with yesterday's lows being the first base of the "W" and today's expected pullback from last night's Daily Wrap post seemingly on tap, it was time to take those gains before they disappeared.

As you know, with options I don't want to hang around any longer than need be, as soon as we start to lose momentum on the trade, I want to be out of there before time decay starts eating away at the gains (especially on weekly options).

As you know from yesterday, this hasn't been a strong underlying move thus far, this 3 min SPY/3C chart shows nothing other than in line status, no accumulation.

As far as the other averages, the Q's and IWM are still lagging like yesterday, although they've improved significantly, the SPY still leads the pack and this is still a VERY minor divergence.

Because it took some time to put this post together, we are lucky to see the results of the market and that we were correct in following the 3C signals and expectations from yesterday.

I closed the SPY Call position at 10:18 this morning after it was obvious there was no 3C confirmation of the gap up in the SPY, nor was it there in any other average.

We took gains on the position at the very top and bought yesterday near the very bottom, it's not the easy thing to do emotionally, but if you have an edge, not just buying weakness, but knowing that weakness is being accumulated, you have to move past emotions. WE GET PAID TO TAKE RISKS, NOT TO GAMBLE, BUT TAKE CALCULATED RISKS.

As far as expectations, as you know yesterday as soon as I saw intraday distribution in the afternoon I suspected a "W" base, that would be where I'd add to the call position or now enter a new one IF we have the same 3C confirmation, in this case if that happens I may go with an April call instead of a weekly.

This 1 min chart of the SPY from yesterday since the open to present shows the outline of what was expected to be a "W" base, the first bottom is in, the reaction / pivot high or the middle of the "W" is in (where we just took profits) and we are moving down toward what could be the second bottom of a "W" base.

If we see accumulation at the second bottom we'll move ahead with some new short term trades, until then we have no edge and need to wait for the signs of institutional accumulation of the price lows.

As mentioned, the NASDAQ 100 and Russell 2000 (QQQ and IWM) both confirm the SPX/SPY.

Congratulations if you pulled some money out of the market this morning, I know that weekly call wasn't an easy trade to enter.