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Tales of a Technician: The July that was

August 16, 2017

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Tales of a Technician: The July that Was

Well someone hasn’t been minding the store. Here we are in mid-August and I’ve yet to do my monthly rumination. Just think what lessons I might have lost from July’s trading!

As a reminder, these monthly retrospectives fall into four categories – the monthly theme, what I did right, what I did wrong, and my trade of the month.

The Death of Volatility

My theme for the month is one that arguably could be the theme for July of most years. It was the month where volatility died. Historically speaking, July is almost always where volatility troughs for the year. The big boys depart their trading terminals in search of the beach and golf course. And the market settles down for a nice little nap. The graphic below shows the average actual volatility of the market.

What’s most impressive for this year is the depth of Mr. Market’s slumber. The Volatility Index (VIX) scored a new record low of $8.84. Those of you following my option reports have already read my thoughts on the topic, but suffice it to say, short volatility strategies worked like a charm in July. A slow grind higher in the market plus a plunging VIX is just what the doctor ordered for short premium strategies like naked puts, covered calls, credit spreads, and so forth.

And since that’s what I wield on a daily basis July was one of my most profitable months of the year.

What I Did Right (aka why my mommy should be proud)

I suppose I could highlight a number of positives from my trading. I’m grasping for something as the key item but really nothing stands out to me. I entered my typical systems, sidestepped any major losses, and managed according to plan. And I guess that’s all we can really ask for right? We get engaged, play the game, and make the market beat us. As is usually the case, the market lost and I won. Since I’m lacking in the content department how about we round this section out with a list of all the tickers I traded last month. This will provide you with an idea of what’s been on my radar.

Bull Trades: XME, BBT, MS, SLV, XOP, XLF, EEM, AMD, TSLA, BABA, XBI, CELG, T, APRN, FCX, VIX

Bear Trades: TLT, QQQ, COST, USO, AMD, XRT, FB, IBM, MU

Neutral: RUT, SPY

What I Did Wrong (aka my last vestiges of stupidity)

Fortunately I don’t have any blunders to share today. Curiously, my stupidity lied dormant for July. Let’s hope I find myself equally unmolested next month. Now, this doesn’t mean I didn’t have any losing trades, mind you. It’s just that each one of them were well within my risk limits and I was able to execute my plan with consistency.

Trade of the Month

You’ve heard me talk about the concept of return on time invested (ROTI) before (read here). Well, for this month let’s look at an example using COST. On Aug 2nd, I entered a Sep $170/$175 bear call spread for 45 cents. At the time it had 44 days to expiration. If I ended up holding to expiration my profit per day would have been around one penny per share per day (roughly $1 per day).

Because COST dropped precipitously over the next two days I was able to buyback the spread at 20 cents on Aug 4th. So I captured 25 cents of the potential 45 cents, or 56% of max gain in two days. At that point I bailed. What was my profit per day? $12.50. Had I held to expiration it would have a touch less than $1.

That’s why I take my money and run if I get a quick favorable move in my favor.


Check out the entire 2017 retrospective series:


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3 Replies to “Tales of a Technician: The July that was”

  1. Avatar BRUNOSILVINO says:

    What a month!!! Congrats for the competence! Wish that your Aug be even better!!!

  2. Avatar OMARGARCIA says:

    great example of cost trade.

  3. BeauMoody BeauMoody says:

    ROTI for the win! 50+% of max premium in two days like stealing candy from a baby. I love it

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