Hey 5-Star Trader,
“Tuesday Trade” Journal: One of the most important concepts in trading is to review your work, and learn from the good and the bad. Identifying what is working is critical — to do more of it. So, to lead by example, each Tuesday, you’ll get a trade from my trading journal, in which I explain my thought process from start to finish. Trading is all about finding something that works, and applying it over and over again. That’s how you find trading success. So study up on this “Tuesday Trade” and let’s get to work.
For this week’s example, I want to talk to you about Chewy.
As a momentum trader, I’m always trying to identify the direction of the market, but when the market chops I prefer to buy iron condors. Keeping that setup in mind, I went on the hunt for the perfect ticker.
On June 10 I ran Chewy through my Hot Zone tool and saw that it normally moves are around 1% on earnings (pictured below). Granted, last quarter was an anomaly when it experienced a 14% move, but then it immediately came back down to baseline.
The market maker move (MMM) was also high at $5.53 and the implied volatility (IV) was 141%. With this in mind, I went in and sold three iron condors (calls and puts)ㅡ SELL -3 IRON CONDOR CHWY 100 (Weeklys) 11 JUN 21 79/84/79/74 CALL/PUT @3.72 limit order (LMT).
My idea was to capture IV crush overnight and take it off in the morning. The risk was outside of the short strike and the credit, so I was risking the full amount.
The next day at market open Chewy was looking good. I decided to give it a few minutes and wait for the spreads to come together to see if I was going to exit right away or wait a little longer.
After waiting for a little bit I closed out my puts for a profitㅡ BUY +3 VERTICAL CHWY 100 (Weeklys) 11 JUN 21 79/74 PUT @2.25 LMT. I only closed out the put side because the call side had $0.40 left which could decay further and I thought I could scrape more out of it.
In the end, I let my calls with Chewy expire for a win.
As many of you know, Chewy is one of my all-time favorite tickers to trade. Pre-Covid-19, I added it to my “millennials love it” Phoenix Folio list and traded it constantly. During the beginning of Covid-19, we saw a lot of companies struggle, but with pet adoptions exploding, Chewy remained strong. As Covid-19 finally begins to wind down, and the market is choppy, but it’s still here giving me an opportunity. Trading the same ticker over and over again is very profitable if your setups adjust to market conditions!
Want to learn more about how Danielle creates her watchlists? Check out her Phoenix Finder class where she outlines how to pick the ‘best in breed’ stocks.