The stock market was feeling optimistic ahead of the FOMC meeting on 1~2 Nov, especially a Wall Street Journal article published the week before suggested that the Fed could pivot.
I was in the camp that the Fed would not pivot and that the market would sell off after the meeting. So, I started a position of 5 contracts of Bear CALL Spread on QQQ (Nasdaq ETF) with a Sell CALL with a strike price of $260 and a Buy CALL of $263. That means if QQQ falls below $260 on the expiration date (4 Nov), I would get max gain. If the QQQ is above $263, it would be the max loss for me. I opened the contract when QQQ was trading at $267.
The intent of this trade was to bet on a huge selloff that would cause the premium to drop significantly, so I can buy back the spread to close at a profit. I do not need the share price to drop to below $260 to capture the max gain, as any significant drop in share price would result in a profit if I close the contract before expiration.
My maximum loss on expiration was $155, which I was willing to take, in exchange for a $1345 profit. Of course, I do not need to wait for the max loss to happen, if the stock market goes higher after the FOMC meeting, I can quickly cut the loss so the total loss for this losing trade will be less than $150.
The Fed did not pivot as I had anticipated and Jerome Powell’s (Fed Chairman) somewhat hawkish comments crashed the QQQ by more than 5%. I then closed the trade the following day on 3 Nov, when the QQQ fell a little more, to lock in a profit of $605. Using the max loss as the benchmark capital, the return over 2 days is 390%.
Concluding Thoughts
This is a low-probability but low-loss/ risk trade that can be considered if you anticipated that there will be huge price movement (whether up or down) after a major economic event. e.g. FOMC meeting, CPI reading release. If you are wrong on the trade, you will incur a minimal loss. If you are right, the reward will be good.
*** FREE RESOURCES ***
Keen to learn about options trading but do not wish to pay for expensive courses, this newbie guide will help gain the knowledge and fundamentals to understand options better. And it’s totally free!
The Newbie’s Guide To Options Trading
After accumulating more than 600k of unrealized losses on my portfolio, I wrote this article to encourage friends and investors who are also losing a lot of money to the market.
If You Are Feeling Depressed From Losing Lots Of Money In The Stock Market, Here’s An Article For You
In the 10 years of my investing journey, I have made many mistakes but also learned many lessons from these mistakes. I compiled the 10 most valuable lessons that I have learned and may they help you succeed in your investing journey.
Happy 10 Years Of Investing | 348k (Realised) Profit, 635k (Unrealized) Loss & 10 Lessons Learnt
I did these 10 side hustles while holding a full-time job, so I share them here so you can be inspired to grow your wealth through a side hustle that you enjoy.
I Did These 10 Side Hustles While Working Full Time | 10 Side Hustle Ideas To Help You Earn An Extra Income
Struggling with inflation and high cost of living? Try these 10 methods to help you save money and accumulate more savings for investments or rainy days.
10 Ways To Save Money To Help You Fight Inflation & Rising Costs Of Living
Excited to start your trading journey or perhaps try out with a paper trading account to build your confidence in trading? Check out this step-by-step to help you get started:
How To Buy Options on Interactive Brokers (Step-By-Step)
Looking for ideas on what stocks to invest in or which stocks to trade? You can take reference from what I have been buying or selling. I try to update them as soon as I can in this section, as well as share my thoughts on executing these trades:
MY TRADES
Also, check out my trading strategies in different market conditions, whether it is bullish, bearish or volatile:
How Not To Lose Money In Trading? | My Trading Strategies For Bullish, Bearish And Volatile Market
I watched tons of videos on YouTube since 2020 and if you are wondering if there are any useful channels that you can subscribe to for learning market trends, TA, FA, check out this compilation here:
My Secret Weapons For Options Trading: I Watch These YouTube Financial Channels Every Day
I concluded my first year of options trading with more than USD160k of gain, see how I do it and the capital I use for every month to give you a sense of the percentage yield I get out of my gains:
1st Year Options Trading Recap: The Journey Towards SGD$217,509 Profits In 2021
This blog is as authentic and as transparent as I can share, I do not just show the wins and hide the loss. I have made some very bad decisions in the first 8 years of investing and paid a huge price for them. Here is the loss I have accumulated during these years. I hope you learn some lessons from my mistakes.
I Cut $135,715 Worth Of Losses In The Last 1.5 Months
Follow me on your favorite social media platforms, Facebook, LinkedIn, or Twitter, to get notified of my latest blog posts.
*** FREE EBOOK ***
Download a free (Volume 1) copy of my motivational book to help you cope with the negative emotions in life and find the happiness that you deserve.
Learning Investment With Jason Cai 