Trading Diary For SPY Expiration

Today is the real expiration of SPY the ETF that matches the S&P 500 index. So much of the market’s moves take place overnight so I thought that where it opens today will be close to where it stays after all the news comes out. This morning there was consumer confidence at 10 AM and January home prices, the Case-Shiller Index before the open. Interestingly, the 20 city home price index showed that the decline for the year to January was 19% which is large, yet the market opened up. The consumer confidence index was very close to last month, marginally higher yet the market continues to trade with gains and in a narrow range.

Since the market was between two strikes, I put on a spread ratio trade. I bought the 79 strike call and sold three times as many 80 strike calls, for a small credit. If the market stays between 787 and 803 I will have a profit. If it wanders out of that range, I will take the trade off. The best possible outcome is if the market closes at 800. Then the 79 calls that I am long, have their maximum value and the 80 calls that I am short are worthless.

1:45 PM the S&P has moved up to 803 which is touching my breakeven point. If it gets to 805 I will sell out the position to avoid large losses.

2:45 PM The S&P has moved to 810. I have bought back the short calls and left the long calls on.

3:45 PM Now the market has turned over so that I have losses from the short calls and the long calls are losing value. It is the worst possible scenario, but I was trying to recoup my losses on the short calls by keeping the long calls on. That was a big mistake. If I kept the trade on to closing, it would have made money according to plan, but the move to 810 was too large to keep the trade on safely