After a Friday’s strong rally a week ago the market went up on Monday and then stalled. I mentioned to be cautious although I believed we had room to upwards ①. After that, the market went mostly down ②.
 

But, it was evident, that this market was not in panic, it was resilient to bad trade deal news from Trump. It literally refused to go down. Every dip down was bought in the end. This turned the market into a healthy pullback, a healthy gains consolidation. Of course, it may all change, but I do not think it will happen. I think, we will clear this pullback, and the market will resume its uptrend ③. Then, I think we will move towards the end of year rally and go to approx. 3150 level ③. After that, we will see what the market wants to do next.
 

My expectation is a bull market continuation. In fact, it appears, that the selloff we experienced in December 2018 was a major bottom ④ which will not be revisited again in the next future of this market (like many previous bottoms except one in 2000).
 

Next week we still may see some weakness but it appears that 3100 level holds. If it keeps holding, we are heading up. Remember, that market, which refuses to go that has nowhere else to go but up.
 

Open trades:
 

#43 – PBCT naked put – https://tinyurl.com/sajds2z
#44 – PPL naked put – https://tinyurl.com/r6u4xjw
#45 – IWM naked put – https://tinyurl.com/yx6ae54e
#46 – IWM strangle – https://tinyurl.com/vq8gtcs
 

Stock holdings:
 

2 HP
1 MCD
2 MSFT
1 PBCT
1 PPL
 

#42 – We closed our remaining SPY spread trade as expected and added additional $17 dollars profit to our overall trade. We treated this trade as two separate trades but overall, we made 1.54 credit or 45% in 12 days.
 

#43 – Our PBCT naked put is still doing well although last week the stock went down from $16.48 when we opened the trade to $16.05. At the end of the week, the price recovered and the stock closed at $16.30. This makes our trade safe so far and we can do nothing as of now. We will sit on it and wait. Again, if the market keeps weak next week and the stock goes down we may attempt to roll the trade into the next expiration cycle and the same strike if for credit or a very small debit. Weekly chart indicates weakness and that we broke below two supports ⑤. If this weakness continues, we may act and roll the trade. The daily chart is a bit more promising that this level may hold ⑥. We have still plenty of time in this trade so we will keep holding it as is.
 

#44 – We took our profits from previous trades and opened a new naked put against PPL last week. We collected nice $41 credit which we immediately reinvested into the stock and bought 1 share of PPL. The naked put seems to be working well in our favor. The stock still follows the trend ⑦ ⑧
 

#45 – We added a long call using IWM as underlying. The trade worked well on Monday and Tuesday. Later on the trade started losing but not too much. If our overall market expectation is correct, IWM shall go up with the market again.
 

#46 – We also opened another far OTM long put and long call trades for which we paid literally $20 but the premise was that since we are in a low volatility market if the volatility spikes, this trade should pay off. It briefly happened with our put which gained some momentum. However, when on Friday the market recovered sharply, the momentum got lost. I expect though, that the market will keep crunching higher and higher and eventually, we may reach the 200 dollar mark. If so, our calls will have a nice paycheck for us. Overall, we only risk 20 dollars in this trade and I am willing to lose it if none of my expectations happen.
 

The market rallied to 3100 as I expected last week. It was probably a bit too fast though. Now, that we are at this level, what’s next?

I think, we still have some room to go higher, unless Trump spoils it with his trade wars, which I think is less likely since he now has other problems than a trade war, but you never know. One tweet can change it all. But, looking at the weekly chart ① we can see that we are at the top of the rising wedge with some small room to go. Will we go higher or are we bound to reverse? The daily chart ② assumes that we still have room to the upside. But I would be cautious.
 

IWM also indicates on its weekly chart ③ that we are on top of the long sideways channel and that we may be reversing to the downside. However, on the daily chart ④, it is forming a nice bull flag, indicating that we may in fact clear this resistance level and breakout to the upside. We need to wait now and see. Overall, I think, we may see going to 3150 and then we will see where we go next.
 

Open trades:
 

#42 – SPY long call box – https://tinyurl.com/y6cv5r22
#43 – PBCT naked put – https://tinyurl.com/sajds2z
 

Stock holdings:
 

1 MCD
2 MSFT
1 PBCT
 

#40 – We took profit in our MSFT butterfly this week. The stock had a nice breakout and then entered a consolidation, or high base from which we broke up again as expected ⑤. But, it seems, the trade is now extended to the upside. It may fade next week or continue higher. If it fades, we would look like geniuses that we took profits, if it keeps blasting up, we will look like idiots for not letting it run. But, if MSFT fades, and consolidate, we may re-take the trade. So far, we made 295% profit in this trade. We then took the profits, and purchased 2 shares of MSFT to build our wealth.
 

 
#42 – We closed our 308 SPY long call trade but we still hold the debit spread of the box. We expect this trade to go away next week (unless the market sells off). As of now, we have a profitable trade and in good shape. By closing the 308 long call we achieved a 52% profit. Not as great as last time, but the market slowed down and we were running out of time. So we decided to close the trade and take profits. If the debit spread closes early next week, we will add more profits to this trade.
 

#43 – We were also able to release some of the bad SPX trades this week and re-allocated our funds to our equity trading plan. We opened a new naked put against PBCT stock. The stock is a dividend champion, paying nice dividend (current yield 4.31%), and increased the dividend for consecutive 26 years. The stock recently broke from a downtrend on a weekly chart ⑥ as well as daily time frame ⑦ and is now in a consolidation pattern. We think this pattern will hold and the stock will resume its uptrend. If not, and the stock dips below, we will take assignment, buy 100 shares and sit on the holding, collect dividends, and if the stock returns up and above our purchase price, we may start selling covered calls. We will not be selling covered calls if the stock is below our cost basis. The reason is, that this stock has thinly traded options and doesn’t offer much ability to roll or otherwise adjust the trade.
 

One trading strategy does not work all the time and in every market. There will be time when one strategy stops working and another strategy has to be used while waiting for new opportunity to trade the first strategy again.

We traded SPX options lately, Iron Condors, Put Spreads, Call Spread, or Iron Flies, but in this market, I started seeing being whipsawed way too often. This is a hard market to trade. Of course, there will be traders out there who would thrive in this market. There will be traders who would make killing trading this volatility but, sadly to say, I am not one of them. I do not have means and time to sit behind the computer and adjust our trades minute by minute. I can’t respond to a market which is up 0.80% in the morning and down -1.20% in the afternoon because of a tweet.

And even if I was able to adjust my trades it all turned out to be wrong again and I got whipsawed. I tried to adjust and do something about my trades just to find out, it didn’t work. So, in situation like this, the best thing one can do is to stop trading, step back, and evaluate the situation. And that is exactly what I did. I rolled all my bad trades away to gain time and see what I can do next and stopped trading.

That’s why you may have seen no activity, no posts, no trades in our Facebook page.

And, while evaluating our trading I found out that I was trading way too aggressive and too much. Trade often, trade small. Well, I think I was trading way too often and not small. And this contributed to my “piss off” mood. I was at attention all the time, constant stress, watching the monitor all too often… That was exactly the time to step back and calm my soul again.

And when the whipsaw mode went to the point when I shouted “I can’t trade this market anymore!” I realized, this was a time to change.

 
So, what will we be doing?
 

1) As of now, we will not be trading SPX trades as often as you may have seen. We will be primarily rolling our bad trades to get out of them. This may take months or years, but it is important. Time to time, we may open a small trade, usually right after a large selloff, consolidation, or breakout. But it will be more of a wait and trade than a regular weekly trading.
 

2) We are adding equity options trading, meaning we will be trading options using dividend stocks as underlying. We will be selling naked puts and covered calls.
 

3) We will be selling naked puts against dividend stocks with 25 – 30 delta and 30 to 45 DTE. If the puts get in the money, we will attempt to roll the puts into the next expiration cycle only if the roll will be a credit trade. If it cannot be a credit trade, we will take assignment and buy 100 shares. In this case, it is important to have enough cash in a trading account to be able to buy 100 shares without getting into a margin call.
 

4) Once we get assigned, we will start selling covered calls. The strategy however is to build a dividend stocks portfolio with intention of NOT selling our stocks. We want to keep all stocks we acquire. If the calls get in the money, we will hedge the position to protect our position. One strategy may be to sell new puts to get back into the lost position. For example, a stock is trading at $30 a share. We sell a $32 strike covered call. The stock moves to $34 a share. We may let the calls call our position away but we sell new $34 strike puts to get back in. We will also adopt rolling the calls gradually up and away (as long as it is a credit trade), or simply closing the position.
 

5) Here comes the wealth building part. These days, many brokers cut the commissions to zero. That is a great opportunity to build your portfolio at no cost! You can literally buy only 1 share of a company stock and it will cost you nothing. What an opportunity! This will also allow us to invest all proceeds – premiums and dividends – into dividend stocks. If, for example, we sell a naked put, and collect $34 credit, we can buy 1 share of a stock trading at $34 or less. And even 1 share will allow us to start receiving dividends and participate in a price appreciation! And the more credits we receive and more dividends we receive, the more shares we can buy at no cost!
 

6) One important thing to mention, trading this strategy requires enough savings in one’s account. We will be trading in a margin account to lower the capital requirements. In a margin account, a stock trading for $30 a share will require approx. $1,300 buying power. In a cash account, a trader will need $3,000 buying power. If you do not like trading on margin, you must save the entire amount before you start selling puts (in this case cash secured puts). The worst thing which can happen to you is to be forced to close a newly acquired 100 shares (when assigned) at a loss because you got a margin call due to lack of buying power.
 

7) As mentioned above, we will be investing all dividends and all credits from options into dividend stocks from our watch list – cheaper stocks at first, more expensive stocks later (as the cash flow increases). Our watch list is shown below:
 

And, what about SPX?

We will still trade SPX. This is not an abandonment of a strategy. We are just adjusting our trading to mute what stopped working for us and add a strategy which, in my opinion, would better suit this market, our time available to be dedicated to trading, and peace of mind. As our trades will be repaired more and more, this market calms down a bit and shows direction again, or I will get more confident trading SPX more often, I will start adding more and more trades. As of today, my state of mind is fear. Fear of being wrong, fear of losing money. Fear of being whipsawed again. Fear of not knowing what to do. I think, it is bad, very bad for any trader. I want trading to be not just a business but also fun. And these days, it was not fun; it was frustration. Let’s make trading fun again.