Live: Tuesday, March 3, 2020

2:10 p.m. New York time

I have posted entry analyses of three short bear call spreads on SPY. Lots 1 and 2 expire April 17. Lot 3 is for a similar position expiring March 20, the early expiry being the result of a trading error on my part.

Here are the three analysis:

Before entering the new positions, the Federal Open Market Committee announced an unscheduled meeting and reduced the target Fed funds rate by half a percent, which is double their normal reduction size. The new target range is 1% to 1.25% and amounts to a one-third reduction in the interest rate.

Putting on my Math hat here (thanks, Andrew Wang!) … wait a minute, that’s huge! That’s a recession level reduction. And that doesn’t leave a lot of room for further reduction if the market crash is indeed a harbinger of the next recession.

Stocks briefly swooned upward after the announcement, and then just as quickly fell back, and then kept on falling. During the upward spike three of my long-unprofitable March short iron condor positions — SMH, XBI and XLP — briefly became profitable. I acted quickly, got no fills, chased the price, still no fills, and the positions became unprofitable again as stocks pulled back. High hopes, dashed again. Like February, March, has been an unkind month for my trades.

11:45 a.m. New York time

Today is entry day for my options positions expiring April 17, which 45 days from now.

A major change: Before the Coronavirus Crash, I was trading short iron condors, which are based on the premise that stock prices will trade within a range. This time, I’ll be trading short bear call spreads, which are based on the premise that stock prices will go down.

A second major change: Before the crash I saw value in diversifying into options based on a number of exchange-traded funds. But Over the past week plus change, I’ve seen nearly all of the ETFs I follow dancing to same tune. Since my expectations for the markets are based on the S&P 500 chart, I’ve decided to forego fund diversity and use SPY options for all of my April positions. SPY, of course, like its parent index, tracks 505 stocks, so there’s a great deal of diversity already built in.

And a complication. Since my March options are still alive and losing, soaking up free cash, I had to spread my short bear call spreads in two lots across several accounts. So, different trades with slightly different metrics means that I’ll be posting a separate analysis for each. Coming soon.

By Tim Bovee, Portland, Oregon, March 3, 2020


Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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