Monthly Theme

As is always the case in October, earnings stole the show. The largest companies on the planet stepped up to the plate to reveal whether their ongoing ascensions were built on fluff or actual earnings growth. Turns out it was the latter, especially in the technology sector. The so-called FANG gang shut-up the naysayers and galloped higher dragging the Nasdaq to record highs once more.

And don’t get me started on chip stocks. The semiconductor industry’s gravity defying ascent has long surpassed the moon (see SMH).

On the seasonality front, the historical headwinds of September & October weakness were nowhere to be seen. Which proves once again that seasonal patterns matter until they don’t.

What I Did Right

You’ll recall September was my first losing month of the year. And it was a doozy, no doubt about it. How you respond following a losing streak can have a massive impact on your trading performance for the year. Some want to quit, to sit on the sidelines and nurse their wounds. Others morph into revenge mode and increase their bet size in an attempt to make back their losses quicker. Both paths have their faults and are inferior to this third one – stay the course. A successful trading system works over time, and over a large sample size. The only way to capture the profits inherent in every good system is to keep on keepin’ on.

And that’s arguably what I did right in October. I deployed my December condors despite the fact that the Russell 2000 evicted me from the house of love last month. I continued finding quality setups and executing sound trade ideas. And though October was basically a scratch on the P/L side for me, I proved to the Market Gods that I’m playing the long game and can wait out their temper tantrums.

Staying the course is always a victory worth celebrating.

What I Did Wrong

I’ve been trading bonds to the short side all year long with mixed results. TLT has had a few actionable downswings but by-and-large the long-term bond ETF has remained overall bullish. My weapon of choice for trading TLT on a monthly basis is to look for quality setups for bear call spreads.

The safest way to play a strategy like this is to wait until you’ve exited the current month’s trade before entering the next month. That prevents you from getting nailed on both simultaneously if bonds rally. This month my greed got the best of me and I entered Dec bear calls before I exited November. I scaled into Dec but my first batch filled on 10/27. All TLT has done since then is ripped higher. And I’ve now given back the gains on my Nov spreads while racking up losses on the December. At the time I entered December the value of the November bear calls was around 19 cents or so. I was waiting until they fell in value toward 5 or 10 cents before exiting. In hindsight I should have simply exited Nov with the gain I had at the time before entering Dec.

Bottom line: If you’re trading something on a monthly basis, the conservative approach is to wait until you’re completely out of the current month before entering the next one.

Trade of the Month

NVIDIA is making a repeat appearance for the trade of the month. It’s trend kept on trending and I was able to capture another solid gain with a bull call spread. On Oct 9th, NVDA scored a breakout and with the stock trading at $183, I bought a November (six-week) $180/$190 bull call spread for $4.73. The stock rallied over the next seven trading sessions to $197 lifting the value of the spread to $6.72. That left me with an unrealized gain of $1.99, or roughly a 42% return on investment.

Since NVDA was overbought and ended the day with a doji candle, I decided to exit the position. With the stock now trading for $210, you might think that I regret exiting, but I don’t. For the seven days following my exit, NVDA treaded water and even fell back a bit, so I definitely maximized my return on time. Moreover, I could have re-entered during the Oct 27th breakout had I wanted to continue riding the trend.

This trade illustrates how bull call spreads deliver quicker and larger returns than a bull put spread which makes them more appealing if you’re looking for a more aggressive way to capitalize on a strong trend.

Check out the entire 2017 retrospective series:

• The January that was
• The February that was
• The March that was
• The April that was
• The May that was
• The June that was
• The July that was
• The August that was
• The September that was
• The October that was
• The November that was
• The December that was

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