FOMC Trade Update
Pat on the Back to good analysis and profits
We wanted to provide an update on our analysis, thesis and trade ideas that were posted in the FOMC trade post.
The link to the previous post is posted again for reference.
So, our 1st scenario played out well. We got a Neutral FED. At least, the market reaction to the FED meeting was our listed 1st scenario.
I chased with a few TQQQ calls as mentioned in the post. They were nicely profitable. Actually, the way the market played out, calls in any tech name would have also worked. But this post is about what we had anticipated in advance. In that regard, we anticipated correct.
Now update on the Google call butterfly:
Butterfly trades are known as low probability trades. The main reason is that pinning to a particular price is hard. Even with those lower probabilities, if one knows how to configure them correctly, any move small or big in your direction can make money. The risk is very small because the debit paid is so little. I usually look for 5 times of the profit in my butterfly trades. Unless of course, I am thinking that the pin is highly likely on the day of expiration.
Today on OPEX during the first hour of trading GOOGL traded to 2675 price. This was the pinning strike that I had chosen.
Now, I had 2 choices. 1) Take profit. 2) Wait and see if GOOGL consolidates for sometime so that the the butterfly spread can expand which in turn means higher profits.
I saw the ticks were all positive and steadily rising. Also GOOGL price was rising too. There was no bearish divergence. So the chances of GOOGL blowing threw my credit spread part of the butterfly was high.
So I chose to take my profit. I was filled at 8.5. I had paid 1.5 per contract for the butterfly. So, I made 466% on the trade.
If I had waited to see if GOOGL came back to my pinning strike, then this butterfly would have been a loser. Because GOOGL blew past 2700 and closed at 2722.
In summary, our thesis on the FED, the market reaction to the FED and both trades suggested worked.
Of course the butterfly trade needed good trade management.
Taking a call on GOOGL would have also worked. Probably made more money. But the way I trade, what if I am wrong how much can I can lose. In this case, if I was wrong, the most I could lose was $1.5 debit paid.
When coming up with a trade, I first think how much can I can lose, then how much can I potentially make and then how much realistically I can make.
For the GOOGL trade
The most I could lose $1.5
The most I could make was $23.5
Realistically, I could make $8-$12
After proper trade management, I was able to make the realistic planned amount. So, I consider this trade a successful trade.
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