Tales of a Technician: Phoenix Trade Rundown
December 20, 2021
Contrary to popular belief, uptrends are not where you make your money. Downtrends are. Anyone can make money when the market’s roaring higher. Click a button, get exposure, wait a few days, ring the register. Easy.
Making money is one thing. Holding onto it is quite another. In downtrends (or “bear markets,” if you will) bad traders give back all their profits. Good traders don’t. If you want to instantly improve your trading results, then learn how to minimize the damage when prices go south.
Here’s how we’re handling some of our practice positions in my Team Phoenix Trading Lab. If you like what you see and want to follow our conversations, weekly classes, and hypothetical portfolio, then come join me for a free trial here.
Phoenix Examples
Verizon (VZ): Long 100 shares at $52.18 from an assigned naked put back in November.
After VZ popped on 12/16 and 12/17, we were finally able to get a decent payment from selling OTM-covered calls. So we did! Sold the Jan $55 call for 37 cents. That reduces our cost basis to $51.81 while obligating us to sell shares at $55 for the next month.
iShares Russell 2000 ETF (IWM): Short Jan $203 naked put at $2.13. Currently at $4.10. This is a core monthly cash flow play for us. Our default plan is to add size (e.g., sell more contracts) if the price of the put rises to 1.5x or 2x the original premium. We’re obviously at the level now, so we could add with a trigger. I contemplated selling the second tier today due to the reversal candle. Another potential trigger would be entering tomorrow if we take out today’s high. If prices gap too far, I’ll sit tight and wait to see if we get another drop for better entry. If today was the low and we rip from here, then I’ll simply win on the first tier.
Disney (DIS): We’ve been trading this for a few weeks now. Originally sold a Jan $135/$130 bull put spread for 50 cents. Added Tier two at 78 cents and took profits on that tier (at 32 cents) during the recent bounce. Because we formed a bear retracement pattern, we added a bear call spread on Dec 10th, the Jan $165/$170 bear call for 66 cents. At this point, that puts us into an iron condor. Target on the bear call is 16 cents and we’re getting close. The bull put is at 55 cents. We could add another Tier 2 if prices rise toward 80 cents again.
Devon Energy (DVN): Sold a Jan $35 naked put ($63 cents) on Dec 10th due to the high implied volatility and constructive high base pattern. Prices promptly fell and gapped significantly lower today. When the stock rallied intraday this morning and broke a 5-minute resistance zone, we added another contract (Tier 2) for $1.86. Because of the massive rally back, we were able to close the 2nd tier by the end of the day for $1.36 to capture a 50 cent profit. Hopefully, prices continue to stabilize and we eventually hit the target on Tier 1. If we roll over and become oversold again, we could re-enter Tier 2.
Ford (F): Jan $18 naked put entered at 47 cents. Had relative strength and a pretty chart pattern. Since then it’s been a hot mess. Puts are up to 55 cents, so sitting on slight loss. Not much to be done here other than wait.
Energy Sector (XLE): Short Jan $49.21 naked put at $52 cents. Currently at 80 cents. This is a core monthly cash flow play for us. Same game plan as IWM above. Prices have risen enough to enter Tier 2 if desired. To reduce risk in the overall portfolio, I opted to add a Jan $57/$60 bear call today for 32 cents. I sometimes add call spreads to existing bull puts/naked puts if we break support zones. There was an intraday trigger to enter Tier 2 of the naked put. Break of today’s high would be another potential trigger.
Nasdaq ETF (QQQ): Jan $408/$412 bear call spread entered on 12/17 for 50 cents. The plan is to add size at 75 cents and $1.00 if we get a good trigger after a bounce. For now, letting this ride until hit target of 5 or 10 cents.
S&P 500 ETF (SPY): Jan $479/$484 bear call spread entered today for 50 cents. Break of the 50-day moving average was the signal. If the market V-shape bounces to new highs here, then this will lose. However, we will use our scaling technique to add size if we get a chance to enter Tier 2 or 3 with a bearish trigger.
Camping World (CWH): Short Jan $34.09 naked put for 50 cents. Currently at $1.10 and stock is sitting at major support ($36). I like today’s hammer candle formation. We’re past Tier 2 and even Tier 3 pricing, so could definitely add another contract if we get a trigger, such as breaking today’s high. Will be watching this close going into tomorrow.
Tactics Used
Let’s summarize how we manage positions through the downturn.
- First, sell covered calls against stock positions. I’m always a fan of this, but especially so when stock break support and the trend changes.
- Second, get more proactive with adding bear call spreads. I’ve been hesitant to add too many bear calls this year in light of the overall market strength and the speed with which we’ve rocketed back up from downtrends. This go around, I’ve added more than usual. Time will tell if it was the right decision. Importantly, the overall portfolio is still bullish, so losing on these bear calls would be a net benefit to me. Because we are scaling in, I will be able to use a bounce to our advantage. But, obviously if we V-shape to the moon, then no amount of scaling in will save these.
- Third, when prices get too oversold, I’m always interested in adding more naked puts/bull puts to existing positions. This makes it much easier to capitalize on the inevitable snapback. The Devon trade above is a perfect example.
- Fourth, if the selloff gets really nasty and my puts move ITM, the final gambit is to turn them into stock and sell covered calls to recoup the losses over time.
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