Last week was a volatile one, marked by big swings due to a confluence of economic and political factors. Traders grappled with concerns about the U.S. economy and uncertainty regarding potential tariffs and retaliatory actions from U.S. trading partners.
While stocks rebounded on Friday, it was the worst week for the market since September, and the major indices are now a good deal off their recent highs. The S&P 500 has fallen 6.1% since topping out on Feb. 19, and the Dow Jones Industrial Average is down 5% since peaking on Dec. 5.
But it’s tech stocks that have really taken a beating, with the Nasdaq Composite entering correction territory on Thursday. Even with Friday’s advance, the index ended the week down 9.9% from its Dec. 16 high.
As the market whipsawed last week, the CBOE Volatility Index (VIX) went up into the mid-20s. As you can see in the chart below, it is now at its third highest level in the past year, rivaled only by the spikes in August and December 2024.
While heightened volatility typically benefits options sellers, the swift bearish action hurt many of our positions and we took some large losses.
This included closing out part of our Friday Cash Trade (formerly SPX1) at a loss to reduce our exposure. We initially entered a bull put spread on the S&P 500 on Feb. 20, just after the index topped out. Typically, we shut down the trade if it goes against us the next day.
However, as the market rolled over on Feb. 21, we opted to roll the position… and the market kept going down. We then widened our strikes to 20 points to avoid rolling for a debit, essentially doubling the risk… and the market kept falling.
We have since added a call spread, creating an iron condor, to help offset the cost of rolling the puts. But we are currently getting a painful lesson in the importance of sticking to our trade parameters. We will continue to manage the trade in an attempt to exit with the smallest loss possible, but it is going to take some time.
Below is a look at all of the closed trades from March 3-7:
In a week like this, when everything is awash in red, it may be more helpful to look at what worked than what didn’t.
We closed four winning trades across our services that totaled $1,413 in income.
This included a one-day trade on Exxon Mobil (XOM) in the Income Masters program. We entered a bull put spread during Thursday’s live trading session.
In a market perhaps best characterized by the old adage “too late to sell, too early to buy,” we are being selective with new positions. Energy stocks have been outperforming other sectors and the broader market as investors anticipate more deregulation of the industry and increased exports under the Trump administration.
We also set a fairly conservative target exit price at just over 50% of max profit. So when the stock popped in early trading on Friday, our good ‘til canceled (GTC) order was hit, allowing members to book a quick $170 on five contracts for a 7.8% return in less than 24 hours.
While XOM was our fastest winner, the largest win goes to the S&P 500 double diagonal trade from the 5K Challenge program.
The double diagonal is a non-directional options strategy that aims to profit from time decay and potentially from small price movements in the underlying asset. It involves setting up two diagonal spreads, one using call options and one using put options, with different expiration dates and strike prices.
Each diagonal spread consists of a long option with a longer expiration and a lower (for calls) or higher (for puts) strike price, and a short option with a shorter expiration and a higher (for calls) or lower (for puts) strike price.
The long options in both spreads have the same, further out, expiration date, and the short options in both spreads have the same, closer in, expiration date. The strike prices are selected to form a range that the trader expects the underlying asset to remain within.
The primary source of profit is the time decay of the short options. As time passes, the short options lose value, and if the underlying asset stays within the defined range, they may expire worthless.
The strategy can also benefit from small price movements within the defined range. If the underlying asset moves in a favorable direction, the long options may gain value, offsetting any losses from the short options.
The double diagonal is considered a non-directional strategy because it can profit from the underlying asset staying within a range, regardless of whether it moves up or down within that range.
We entered the trade on Feb. 27, with the S&P 500 trading at 5,953.14, for a net debit of $11.45. Specifically, we:
BTO SPX 10 Mar 6110 call
STO SPX 6 Mar 6100 call
BTO SPX 10 Mar 5865 put
STO SPX 6 Mar 5875 put
Between when we entered the double diagonal and when we exited it, the index traded in a range of 5,732.59 to 5,986.09
We watched the trade closely to try to get the best possible exit price, issuing an alert to exit on March 5 when the index was trading at 5,843.85. We closed the position for a net credit of $18.60, allowing us to book a profit of $715 from a single contract for a 33%-plus return in just six days.
Given the extreme uncertainty in the market right now, we will continue to be cautious with new entries. However, we don’t plan to fully sit on the sidelines. Instead, we’ll be on the lookout for relative strength and also utilize options strategies to play bearish moves and/or hedge, and potentially to profit from market indecision.
Good luck out there. We know it’s been a challenging past few weeks.
