RUT Weekly Calendar Trade #5 (Part 2)

Today I will analyze the weekly trade presented in my last post.

The market did get a bit crazy on the final day of the trade. I got out of the trade here:

At the time, I felt lucky to get out of the trade with a profit of any sort.

One thing I’ve learned for my own trading is that the market is very good at sucking me in when it breaks up or down like this. I usually regret chasing the market at these times rather than waiting for it to settle down and pull back.

I can’t even remember how many times I have retrospectively thought, “if only I would have gotten up instead of trading, gotten a cup of coffee, and come back 30 minutes later…”

What happened in this instance? Look at the next 50 minutes:

I definitely could have gotten out for a 5% profit by close or, had I held until Thursday, gotten out for the full 10%.

What’s the take-home message here?

The large negative gamma on this trade is something to beware so close to expiration.

On the other hand though, if I’m not willing to lose 15% on this trade then I can’t expect to make 10%. The trade was still 7-10 points from expiration breakeven when I closed it. I never saw the trade go down significantly on that Wednesday: it was profitable all day long up until the point I closed it…

…and wouldn’t you know it: the point I closed it ended up being the market high for the entire day!

This is typical of the way markets work and I am certain that I was not the only one screwed over by that breakout.

What’s the saying: “markets act to cause the maximum possible harm to the maximum number of traders?”

Yes indeed.