First of all, we saw too much volatility in the market. This is bad for Iron Condor option structures, which rely on very little volatility in order to be profitable. We were eyeing Coca Cola (KO), but the stock was moving too much as were the others that we had identified, so we put that idea on the side and looked at other opportunities.
There was so much volatility leading up to the announcement of the Fed's decision on interest rates, we turned our attention to straight-up option plays - puts and calls.
The first one that caught our attention was Facebook (FB). Fresh off of the announcement about their new stable coin crypto currency project Libra, the stock was looking good for upside, so we bought $192.50 FB Call options expiring in a week for $1,188 and closed the position the next day for $2,940, netting a nice profit of $1,752. Not bad for one day.
Still liking FB but worried about volatility and unsure which direction it would trade, we bought a FB Straddle / Strangle (call and a put, which although less profitable than buying one or the other, is a good play when you aren't sure which way a stock will move) at $2,940 and sold the next day for $3,160, netting a small profit of $220. Not great, but not bad either.
That's when things took a turn for the worse. We believed that one way or another, investors would certainly be disappointed with the Fed's rate decision since actual rate cuts were highly unlikely in June or July. Other than offering encouraging words, there was no rate cut in June and its now a much lower 32% probability in July (down from about 70% previously). Of course, more signs that the economy is beginning to slow appear every day, but that doesn't seem to bother the stock market either. We bought a $290.5 put on the SPY ETF at $2,184. Unfortunately, the market shot up after the Fed news and continued on into the after hours session and next trading day, at one point hitting a fresh 52 week high. The put quickly lost value and with only a couple of days left, was closed out at $264, a loss of $1,920, thereby negating both of the prior trade profits. A good, if not costly, learning experience about how dysfunctional our markets are.
Good news is I put the remaining funds ($2,500) into Bitcoin on Robin Hood and that has done nicely in the recent run-up (along with gold which also rallied after the Fed decision), increasing almost 20% at this point. I see Bitcoin as more of a buy and hold type of asset as I have written about in the past.
No fees on any of these trades with Robin Hood, which is very helpful.
Hopefully you found this insightful and it helps you Build Your Financial Fortress!
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