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Nov 2021: DIA $350 – $351 Bull Call Spread

Stock

DIA

Trade Structure

$350-$351 Call Spread

Trade Date

11/26/2021

Price Paid

$55

Expiration Days

01/07/2022

the  11th 25k Challenge was successfully completed on 12/18.

I still have some trades opened in Nov/Dec which are beginning to close now, so will finish documenting them as they close. 

The beauty of ETF trades!

During a correction, 2-4 weeks of trades will get absolutely wiped out, but we save so much cash with this trading method that using it strategically will save you from these events which come unannounced and without warnings. Corrections although brutal bring amazing opportunities with them. You will notice that ETFs like SPY, QQQ, DIA, IWM etc which represent the Stock Market get pulled back and generate trading opportunities during these events. This is the time when you need to deploy enough cash from your portfolio to take on these ETF trades, so that you either cancel out the damage from the correction or come out in a better place than you were before the correction. 

THIS IS A DELAYED TRADE FOR EDUCATIONAL PURPOSES ONLY.

To participate in our live challenge and to access our online training, please click “Your Account” and upgrade to the “Live Trader” plan.

 

Trade Rationale

Markets gapped down big on this day due to a massive knee-jerk reaction on Omicron news. As I have explained earlier, whenever I can lay my hands on ETF like SPY, QQQ, DIA, IWM I prefer them over stocks. These tickers represent the overall market and in a Bull Market, we always get a recovery whether it is a correction or a knee-jerk reaction like this. The only tricky part is that these trades are hard to come by (maybe once in 2-3 months), so whenever they do show up, I make sure that I grab these trades as they always turn out to be winners. You do have to take multiple contracts of these spreads depending on your risk tolerance. I have seen members in our group take anywhere from 6 to 200 contracts of these spreads in their accounts.

Trade Selection Criteria

Overall market movement

Massive knee-jerk reaction and a gap down in the markets.

No Earnings or Significant News

N/A – This is an ETF

Bollinger Bands outside Keltner Channels

Bollinger bands are only slightly outside Keltner Channels but we are at the bottom of our trading range here.

RSI Analysis

When you are taking trades on knee-jerk reactions, RSI and ADX are of no use. The only thing to watch out for is support/resistance and price/action itself.

ADX Analysis

When you are taking trades on knee-jerk reactions, RSI and ADX are of no use. The only thing to watch out for is support/resistance and price/action itself.

Trade Analysis

The markets went south really quick after taking on this trade and kept selling off until 12/6. We had a minor recovery after that, but got slammed again by another mini-correction on 12/13. Even after going through 2 whipsaws, the trade got closed today for my full profit target. If you had a naked call option on DIA instead of a spread, the Call would have lose almost all its value by now due to Theta Decay. That is why trading spreads is superior to any naked call strategy.

Trade Outcome

WINNER

Profit/Loss

$42

Beginning Account Balance

$23,400

Ending Account Balance

$30,000

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