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 “Tuesday Trade,” I want to outline my trade in Microsoft (MSFT).
Microsoft is a large-cap stock that many traders like to dabble with and (if you know what to look for) there is often a solid setup waiting to be taken. In this case, I was basing my trade off how I thought the market would act during the upcoming quad witching hour (which is the third Friday of March, June, September, and December when options expire).
Three days before quad witching was to take place, I bought two butterflies of Microsoft with a target of $300 — BUY +2 1/3/2 ~BUTTERFLY MSFT 100 17 SEP 21 302.5/300/297.5 PUT @-.20 limit order (LMT). The reason I chose Microsoft is because typically on witching days high volume tickers (like MSFT) will trade around key psychological values. Ideally, MSFT would follow that pattern and stay right around my $300 target and I could make a profit. Below is a picture of my option chain.
My risk vs. reward was approximately 1:1 with only 1.5% risk to my account size. I decided to keep this small because this trade only had a lifespan of a few days and there would be little time to correct if things went south.
A few days later heading into the close, witching hour began. The market was weak in sentiment but Microsoft was holding strong near my target. Finally, in the last 15 minutes of the day, I was able to close my contracts for a win — SELL -2 1/3/2 ~BUTTERFLY MSFT 100 17 SEP 21 302.5/300/297.5 PUT @1.71 LMT. Not a bad way to end quad witching hour!