3/29/20
After some thought, my passion for trading options and stocks has led me to start a new segment of weekly trade recaps. The summaries will recap my activity in options trading for the previous week. I'm doing this to start documenting my journey towards becoming financially independent through trading. I know that's a lofty goal, and it won't be a quick one, but I really enjoy the process and will happily continue trading even in the possibility that I continuously lose a small amount of money. My initial thought on this series is to write a post once a week on Sunday. In them, I will go through my thought process and execution on options trades that I have opened or completed. If what I'm saying is unclear but you're interested, check out my introduction to options trading here. I hope that this material will be informative, entertaining, and encouraging to investors, traders, or even finance beginners who just want to learn more. Making any amount of money in trading is not easy... if it was, everyone would start tomorrow. I have no illusions that I'll become rich anytime soon, but I love the process and am convinced that just as most things (like happiness, as I have discussed), trading too can be something that is learned and improved. I think that at first, it will be hard admitting my trading failures, and there will be plenty. However, I'm sure that my documenting them will not only improve my own thinking, but bring value to whoever follows me on this journey. I'll have more philosophical and technical thoughts on this segment later on, but without further adieu, let's get the ball rolling with my recap on this past week.
Obviously, there has been a lot going on in the economy with COVID-19 cases still rapidly growing in America and around the globe. I'm sure I could talk for hours about the controversial opinions, science, and politics that surround this insane time, but I'll spare you the bore. Maybe the science behind pandemics and their data will be better suited for another post some other time. As it relates to assets and derivatives, I'm sure you've seen the wildly volatile market that the virus has brought. Contrary to popular belief, this volatility can actually be a time of immense opportunity for traders. This concept has to do with the difference between long-term investors and traders. Investors target stocks with the best future growth potential. Guys like Warren Buffet fit here. The market crash definitely affects the value of their portfolio, but the market will recover and these kinds of portfolios will recover and then some in the period of years to come. Traders, on the other hand, can benefit from volatility because their positions can bet on assets going in either direction. For example, some people made hundreds of thousands of dollars after the crash because they expected Tesla to fall significantly. My investment strategy is somewhere in between these two ends. I normally devote most of my portfolio (~90%) to long-term value investing, although it's much less (~20%) after I sold as the market began falling with no signs of stopping. I tend to take about 10% of my portfolio's value and actively trade with it in options. The rest is in cash for me until the economy is more sure and begins to recover (my guess is around June).
My first trade I'll be sharing with you was not a profitable one. I bought one contract of PLNT $37.5p 4/17 for $340 on Tuesday. My thought process was that the overall market was recovering very rapidly without much good news. The government has been taking a lot of action, but the cases were clearly steadily increasing, and places like NYC were starting to get hit hard. With more shutdowns, I didn't think that the initial recovery could continue. That overall sentiment holds for the rest of the puts I bought this week. Planet Fitness was specifically the target for me because I had a successful trade with it before and it has been a big mover, moving 7% or more on some days. I thought that with no foot traffic and membership cancellations they would take a big hit and lose some ground to online platforms like Peloton. Some opinions on PLNT, however, are that the relatively cheap memberships won't be cancelled for the 3-5 months that foot traffic will stay low. I sold the contract the day after for $225 -- a $115 loss to start the week.
My next trade was to buy 370 more shares of CWBR at $0.94 on Tuesday, rounding out my position at 1,000 shares total. This is one of my favorite long-term plays, with medical trial results coming out midyear. I believe in the science behind their longevity-centered medicine, and think that longevity and Cohbar will grow in value. CWBR was at an all-time low and after trading it before I was confident it would bounce back. It ended up working for me this week as it's now at $1.42 -- a profit from the 370 shares of $177.
Another trade I made was a contract of ROKU $85p 4/3 on Wednesday. Again my thoughts on the overall market were amplified after further SPX gains, and ROKU has been a traditional big mover. It benefited, in my opinion, too largely from the market's run and was due for a drop. One thing that made me think this was that it rose with the market but continued rising as the market showed signs of weakness. Again, I have traded this stock's options before and felt like it would drop, as it did the following day. I sold at $525 on Thursday for a $200 gain.
Not mentioned, I made a few really quick day-trades for small losses. I found that after purchasing my two SPCE puts were moving quickly in the wrong direction. I cut my losses for around $40 before things got worse.
As a quick aside, the trades I'm making are not normally so quickly turned over. With the volatility of today, I've found my trading behavior requires more nimble thinking than ever. In the past, the settled market led me to make call purchases with the hopes of selling about a month after, but being a trader requires changing on a dime sometimes in order to limit risk. Ideally, in the future I will hold longer for most of these trades, but I think I'm finding success in shortening my timelines during this weird quarantine period.
Lastly, I bought another put on ROKU minutes before close on Friday ($84p 4/3 for $375). With cases rising and the settling of the governments $2 trillion stimulus, I feel that the market will open lower on Monday. Historically, after the big crash markets recover quickly only to slump into the longer bear market. This happened in '87, '08, and I'm betting on it with this play. Futures as of 6pm today (Sunday), the market is down around 2%, so we'll see how the market responds to the latest Corona Task Force briefings tomorrow.
I hope the first installation in this series was... interesting at the very least. I look forward to continue sharing my wins and losses with you.
-Jack
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