Friday
Most of my efforts today were spent adjusting unhedged open positions. I also added positions in UPST. I now have open swing positions in four different names. That’s my max. I may add to/adjust these positions, but I won’t open positions in any other names until I close some of these.
$AAPL
After testing its long-term downtrend line off the open, AAPL spent most of the day pulling back toward 150 before popping higher at the end of the day.
My 19 NOV 21 147/150/152.5 Call butterfly is sitting pretty, so I left it alone. I’ll continue to hold this anywhere between 149-153.
I have a second, more directional 17 DEC 21 155/165/170 Call butterfly that I was prepared to close this morning as AAPL faded. Instead, I hedged the deltas by selling a second 165/170 call spread. The sale only brought in $0.31, but the original risk is now just $127, delta is just 12, and theta is only very slightly negative, the position doesn’t have much profit, but AAPL’s rally off of the 150 area made me comfortable holding the hedged trade into next week.
Lastly, I took Paul’s suggestion to hedge my 21 JAN 22 155/160 call vertical by selling 170 calls above it. As I showed in the price chart above, I missed the optimal entry for this hedge, so it didn’t contribute much value to the trade today, but it made things comfortable if AAPL spends some time rotating around between 150-155. Downside risk in the position is now just $66. I have upside risk now, but as long as AAPL stays below 160 for the next week or so, the position will be very comfortable. This position has very nice theta behavior that holds a wide sweet spot between 155-170 through early January.
$AFRM
I accumulated two positions in $AFRM this week. They were performing perfectly through yesterday. But after the bell, one of $AFRM’s biggest customers, $PTON, reported atrocious earnings and gapped down over 30%. We opened right on the HB of yesterday’s wide-range bar, pressed up to the weekly high, then sold off down to 160. When my stocks gap against me on what I believe is an overreaction to a market event, I generally let the trade ride for 30 minutes. If price is still below my stop after 30 minutes, I place my stop under the 30-minute low. (Obviously, this approach assumes that I’ve sized and hedged the trade appropriately.) Sometimes, this approach means I take a larger-than-preferred loss. But more often, the trade recovers. Today’s opening tried my patience, but when we bounced above the low of yesterday’s wide-range bar, I was pretty sure I’d be okay. The hourly bands are still down, but that isn’t surprising, given the gap open. And we struggled to recover the weekly high at 165.94, but that wasn’t surprising either, given that $PTON was weak all day, too. But we finished green and above yesterday’s HB, which is good enough for me for now.
I should note here that I have a historical reason for being confident in this trade. Last earnings, $PTON also had a bad report and gapped down, pulling $AFRM with it. But $AFRM gapped back up immediately, running into its own earnings report. Given the strength on the daily chart, I’m expecting similar behavior this time. If I don’t get it, I’ll be out.
My main $AFRM position, continues to look great.
My second position, the 21 JAN 22 200/210 Call vertical got pushed red today because of the gap down. I probably should have just stopped out of this one, but instead I sold the 220/230 Call vertical, which basically flattened the delta and theta and reduced the original risk to $75. I didn’t want to choke the trade that much, but brought my overall position into a curve I liked.
$UPST
I like $UPST and the flag its been forming after its incredible run up. It has earnings next week, and I expect a push into the announcement. Coming into today, the daily and hourly bands were pointed down, but after this morning’s open held the trendline and the prior two day’s low the daily and hourly bands both started to curl. The price action was whippy, so the entry wasn’t a texbook candlestick setup, but price pushed higher, ending solidly above yesterday’s HB, which the hourly bands now supporting. There is a lot of overhead resistance between 336-341, so I anticipate hedging the position further there.
The initial position was a 23 DEC 21 350/400 Call vertical. I accidentally placed the trade in a weekly expiry instead of the 17 DEC monthly. Ordinarily not a big deal, but here it had consequences. The 23 DEC expiry has low liquidity and odd vol behavior. That resulted in the position not building up nearly as much open profit as it should have. In any event, when $UPST pushed up at the end of the day, I trimmed some delta by selling the 425/450 Call vertical to leg into a broken-wing condor. UPST reports after the bell on Tuesday, so I will almost certainly close the position before then.
$NVDA
At least one position is just making me smile. I’ve been holding common in NVDA since about 265, peeling off shares as we go. I only have 1/3 of my position now. We dipped below 300 at the end of the day, but I won’t sell unless we find acceptance there on Monday.
Thursday
There were bucketloads of setups this morning, but I got to my desk late, so I just watched the open. I got active later in the day.
$AAPL
After following through higher, $AAPL pulled back to the rising hourly bands, which coincided with yesterday’s HB as well as HB of the yesterday’s final, bullish candle, which marked the breakout from a multi-day wedge. I expected price to move higher from here, so I bought a 155 call in the December monthly expiry. Price did move up about a dollar but then stalled. Since the hourly bands were still pointed up, I didn’t close the position but instead hedged into a broken-wing butterfly that has a 10-wide debit wing but cost only $1.58. $AAPL rolled over in the afternoon but closed above the prior day’s HB. My deltas are mild enough that I decided to hold the position and see how we open tomorrow.
$AFRM
$AFRM followed through in a big way today, running straight to 168, holding its opening-range HB, then consolidating on top of the weekly high before returning to %168 at the close. The best entry was on the morning move, which pulled back to yesterday’s HB and the rising lower hourly band before rocketing higher. I missed the open, but I traded the afternoon move off of the weekly high. Like yesterday, this was not a typical VO-style entry, but it’s a breakout-style setup I like. Coming into 2pm, I bought a January 200 call for 10.75. I had the chance to leg into a vertical for 9.40-cent credit, but I botched the timing and had to accept a fill at 8.99. So now I have a 10-wide vertical for $1.76–less than 20% of the spread width, so I’m happy with that.
The regular hours price action was starting to make me regret being so conservative yesterday and today. But then the after hours reminded me of the wisdom of delta-hedging. After the bell, $PTON reported terrible earnings and cratered 25%. $PTON is a big customer of $AFRM, and $AFRM gave back today’s entire move in sympathy with the bad report from $PTON. A similar dance happened last earnings, and $AFRM bounced back with a vengeance one day later, so we’ll see what tomorrow brings. Either way, my positions are hedged so I won’t be losing sleep over it.
Wednesday
We’ll start this week at Wednesday, because it’s been that kind of week.
Today was FOMC day, so I came in light and wasn’t planning to trade much. I was holding some $NVDA common and two small options positions in $AAPL. I opened one new trade in $AFRM.
$AAPL
The focus of this post will be my $AFRM trade, but I’ll share my $AAPL positions just so you can see them.
Position #1: After $AAPL’s extremely negative earnings reaction on 10/28, I expected the stock to correct back toward its 149-150 consolidation area. Vol was high and action was choppy, so I didn’t want to lay out much debit on the play. I chose this ever-so-slightly broken-wing butterfly. It was low risk but gave plenty of cushion for the stock to overshoot 150 (which it did) and then bounce around for a while (which it did). Now it’s just a theta play. The T+0 line is forgiving right now, but this trade doesn’t offer much in the way of adjustment potential. Because of the uneven distance between the strikes, I can’t roll up the lower long without flipping my deltas, which I don’t want to do — at least not now. So if price shows signs of drifting away from $150, I’ll probably just close the trade.
Position #2: When $AAPL broke above its weekly HB on 11/2, I legged into this long-dated vertical. I opened with calls and, when price followed through, legged into the shorts, allowing me to get a 5-wide vertical for just 1.06. I love it when I can leg into a zero-cost vertical, but getting my cost down to about 20% of the width of the spread is great. I’ll be looking for opportunities to remove the rest of the cost from this position tomorrow.
$AFRM
After a really nice run from 110, $AFRM has been consolidating and grinding higher for a week or so. That action can be pretty choppy, so I had just been watching. After a big red day on Monday, Tuesday tried to follow through but reversed above the prior pivot low and weekly low. Price then held HB of the opening 30-minute range. This created a mini rounded-bottom pattern on the hourly chart, complete with a big false breakdown and a very clear resistance level around 155.50-156. Price closed strong, right against that shelf.
This morning, price opened on top of the shelf, pushed down a few cents and then immediately reversed and moved above the shelf and the prior day’s high. I bought a call as price cleared the prior day’s high. This was an aggressive entry but one I’m willing to take when a stock acts decisively at a very clear breakout level. You’ll almost certainly overpay as compared to buying on a pullback, and there is a danger of getting whipped out of the trade, so I control my risk by sizing down.
As you can see below, I bought in the Nov19 expiry. With AFRM chopping around and the daily bands flattening, I saw this as a short term trade. I didn’t the volatility of super-short-dated options, but I wanted something short-dated enough to maximize my reward for a quick move.
The trade performed perfectly, running straight up without even touching an hourly HB. When the morning’s momentum stalled at an obvious liquidity area (location marked “hedge” on the chart above), I sold the next strike to leg into a 5-wide vertical for just $0.50.
I expected continuation, but I wanted to reduce my deltas heading into the afternoon FOMC. Thanks to the aggressive OTM call skew, I was able to sell a credit spread over 15% above where $AFRM was currently trading to remove all original debit from the trade. Now, the very worst I can do is make $17.
I’m really happy with this position. Original risk is gone. The resulting position remains bullish but mild. The sweet spot is huge and positioned where $AFRM is very likely to go in the time remaining. Nice!
ES_F and NQ_F
I bought some /MES and /MNQ futures overnight based on some pretty wedge patterns on the hourly charts, but I set my stops too tight and got stopped out by the wiggles. I didn’t attempt to trade the FOMC announcement but sort of wish I had because I think it was one of the most tradeable announcements I’ve seen in a while. Woulda, coulda, shoulda. That said, I’m proud that I recognized in that moment that I was too distracted by other things to focus on the action and chose to sit it out rather than rush in half cocked. Tomorrow is another day.