I play poker and trade options, seeking edges from study, reflection and analytics.

#006 YNDX Call Spread Expired

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Trade Details: Expired 15 Oct 22nd Yandex N.V. (NASDAQ:YNDX) 21/22 call spread for $0.00 (in at $0.65 for 16 days), $0.00 total proceeds. The stock closed yesterday at $19.50.

Return: (100%)

Mea culpa: After I posted trade #006 YNDX Call Spread, I remember thinking it was my best write up of a trade entry yet. I thought it was logical and well-supported, but I was late, and most importantly, I didn't have an exit strategy.

Here's what was learned (in some cases relearned):

I am guilty of trading's cardinal sin: not having an exit strategy. Why did I make that mistake? Overconfidence. From my trade thesis. From recent trading success. From my trade structure that "could protect me against a moderately unfavorable move in the underlying stock." Don't be "right" biased. Don't let recent success or failure affect the quality of your work today. Understand your trade structure, and think forward to potential outcomes and liquidity.

A more sophisticated exit plan could have positive implications for trading results. When crafting an exit strategy, set price levels AND visualize the development of key technical indicators.

Don't confuse moderately bullish with late to market. Prior to the trade, USD/RUB had been weakening for a while. RSX and YNDX had been rallying. Shortly after the trade, USD/RUB reversed trend, and YNDX failed to hold the $22 level.

Tread carefully in markets where outsized currency, headline and political risk exists. Shortly after the trade, Russia became a big talking point in the U.S. Presidential Election, and hawkish interest rate talk bubbled up again - it was a double negative for RUB/USD and YNDX.

I used a call spread here because of my moderately bullish thesis, time horizon (theta protection) and the option chain's wide spreads. Use caution when trading options with wide spreads: liquidity is a concern, bid/ask disparity can foreshadow volatility in the underlying security and you can get trapped when markets fall apart.

A late exit and bad fill is better than zilch. YNDX's rapid fall on October 12th was shocking. Market makers widened bid/ask spreads dramatically. I didn't want to take my first "public" loss, experienced some paralysis and was sunk when the stock fell further on the 13th. Lines drawn on a chart don't have to provide the implied support or resistance.

Beware recency bias. Beware bias relating to trade structure. After YNDX traded above the bull call spread's upper strike, the $22+ print coupled with the short call increased my hold bias. When trading spreads, allowing the short call (or put) to be an excuse to hold the position in the midst of an unfavorable move is a recipe for disaster.

Toggling between chart intervals (i.e. daily to 4-hour to hourly), traders can find technical elements to support their biases. Consistent technical analysis is imperative. Chart construction/intervals should be related to trade time horizon. Ideally, adjacent intervals are trend supportive. Reviewing this trade, I looked at the 4-hour chart (below) and realized my original post offered an analysis of the hourly chart. Despite the inconsistency, the price action and momentum indicators on the hourly, 2-hour and 4-hour charts would have triggered an exit before the market fell apart on the 12th. Sell signals surfaced on the 6th, 7th and 11th respectively. I just missed them.

YNDX 4hr chart showing trade entry / expiration and a clearly missed exit.

YNDX 4hr chart showing trade entry / expiration and a clearly missed exit.

Status: Account $2,318.69 | Q2 Return (39.4%) | Q2 Goal 59%

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