After having supported the Trading the Post Room for the last three months, this week was the first time I developed a hypothesis, turned to tape at essential points, and executed a profitable swing trade. I’ll take you through the idea generation to execution to show how I managed the trade utilizing the skills I have developed from Ronchero and other traders in the room.
Stalking a Stock
Having been in the Army, a good piece of advice many traders have told me is to act as a sniper. So I had been watching JPM into earnings to see how it would perform around the 50 SMA. But, unfortunately, as JPM tested the 50 SMA on October 14, I was involved in too many other trades to get into the trade...
I missed the trade but continue to set alerts on JPM and wait for the next significant level to be tested: all-time highs. As JPM, along with GS and XLF (SPDR Sector Fund - Financials), rejected their all-time high levels, I looked for an opportunity to swing a short position with puts.
One month after missing the first trade, I looked for the same trade to write a put spread at the 50 SMA and be prepared to morph the trade if JPM broke the 50 SMA with strong tape. So, I wrote the 162.5/157.5 put spread with nine days to expiration on JPM’s first rejection of the 50.
The next day, JPM opened below the 50 SMA with strong tape, so I bought back the 162.5 put, and another 162.5 put: a morph. Next, I put a Fibonacci Retracement indicator on the chart and added an Anchored VWAP to the all-time high candle to provide levels for rolling and exiting the trade. The following day JPM, and the other bank names, opened down again, and sweepers were starting to come in on the bank names to provide confidence in the bearish hypothesis, for now.
I’ve rolled the 162.5 put down to the 160 put strike for this week. My 160 put strike was paid for with the change in value in the 162.5 put contract. If tape does not confirm my hypothesis this week, I’ll continue to stay in the trade and possibly extend the trade out in time. The next fundamental level for JPM is the 200 SMA.
For that to change, I’d have to see JPM come back and test the 8 EMA with strength. Otherwise, I can be suspicious of any pops in JPM and look for opportunities for other trades around my core put position.