Last month I brought back my monthly retrospectives, and it’s a trend I plan to continue. Hat tip to Izachar Sapigao who followed in my footstep by engaging in a little look back of his own in our clubhouse. Well done, sir.
Theme of the Month
Given the market’s stellar performance in November, I must admit I wasn’t expecting a repeat. But dare I say, we got a double dose! Initially, November was my 2nd highest profitable month of the year. But not anymore. December beat it out by a smidge making it the new 2nd most profitable month.
And that’s despite the fact that the market didn’t rise as much. To wit: the S&P 500 was up 10.8% in Nov, but only 3.3% in Dec. So why the superior performance? That, friends, is what I’ll share below in the “What I Did Right” section. As for the official Theme for December – I’m calling it follow-through, or trend continuation if you will. All you had to do was pay attention to the extremely bullish message being broadcast across the land in November. If you did and responded by upping your bullish exposure, then you likely had a great December.
What I Did Wrong
Thankfully, this was another month that had few, if any, major missteps. I’ll be the first to admit it’s hard to lose money when the market is as one-sided as it was last month. Here are the top mistakes a trader could have made in December.
A) Fighting the trend by allowing their portfolio delta to sink negative while the market is ramping. This could have been a problem for condor-toting traders who didn’t adapt.
B) Not taking full advantage of the bullishness because they kept their deltas too close to zero. If you’re a cash flow trader, this can be combated by rolling up covered calls quicker and/or rolling up naked puts and/or selling more to re-up your exposure.
C) Poor stock picking could also have torpedoed your performance. Just because the major indexes scored easy gains, doesn’t mean every stock did. Perhaps you were unlucky enough to have more than a few bad apples among your picks.
Though I succeeded in sidestepping any big blunders, I did have a few losing trades.
PLTR: Bull call spread to play a breakout that never materialized. Entered on 12/21. Exited on 12/29 after losing 70% of the invested capital.
SNOW: Bull put spread entered on 12/15 that returned to breakeven on last week’s pullback. Not exactly a loss, but not a win either!
T: Naked put entered on 12/16. The pullback went deeper than expected. This is more of a boomerang play, however, and I remain confident I can manage it back to a profit.
MA: Bull call spread entered on 12/7. The anticipated breakout didn’t materialize so I bailed on 12/23. And yes, MasterCard did rip higher after I exited. As the cool kids used to say in my school. “Smooth move Ex-lax!”
RUT: December Condor got whacked. These are always collateral damage in an epic bull move.
What I Did Right
As a cash flow trader who focuses on selling covered calls, naked puts, and bull puts, the key to maximizing gains lies with redeploying capital and rolling up. In any rising environment, my long stock positions do the heavy lifting. That is if I allow them to by rolling up my calls when/if they move ITM. Both EEM and IWM accounted for a substantial portion of the profits.
On the bull put/naked put side of things, I had quite a few positions that wouldn’t have made as much money had I not reloaded. In other words, you have to rinse and repeat your put selling. This applied this month to SLV, DIS, EEM, XOP, AMD, NIO.
Here were my winning trades of the month:
Naked Puts, Covered Calls: IWM, EEM, X, XOP, SLV, NIO, PFE,
Bull Puts: BABA, DIS,
Bull Call Vertical: AAPL
Poor Boy’s Covered Call: XLF
Long Stock: INMD, AMD
Trade of the Month
On December 15th, Apple officially broke out of its ascending triangle pattern. Implied volatility was at the lower end of its range and I had plenty of cash flow trades in the portfolio already, so I opted for a bull call spread. I went OTM to keep it cheap enough to avoid having to use a stop loss. I purchased the February $135/$140 bull call for $1.26.
By December 29th, the stock had grown from $125 to $138 breathing plenty of profits into the spread.
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