Day Trading on Robin Hood - Part 4 (Midweek Update)

Continuing on with my Robin Hood series, here's a midweek update on my option trading adventure.

This week has been a wild ride, perhaps unnecessarily so as I'll explain later in the post.  I put in two 7/5 Iron Condors on Monday for FDX $165-$170 and one for NFLX $370-$377.5 at market open.  Netflix started moving up strongly on Wednesday when the market opened, with upbeat news about one of its shows Stranger Things, so I exited the contract at a profit of about $224.  NFLX closed the day at $382, which was well above the call I sold, so I would say this was a "good call," pun intended.  One thing I realized is that you have to watch these after they are setup and monitor your alerts.  If there is a strong move in one direction or another, you need to risk manage.  Even with very low volatility stocks, this can be a problem if there is positive or negative news on the company.  In hindsight, there are much better stocks that have lower volatility and beta that are much better candidates for Iron Condors, such as Coke (KO) or Sysco (SYY) or even Nike (NKE).  I have found that Iron Condors are hard to get into for companies like these, but what seems to work best is to put the order in the evening prior so it executes the next trading day rather than trying to place them during the day.  Patience is better than jumping into positions that are riskier, but perhaps easier to get into.  I also closed out my position in NKE $79-$86.5 at a profit of $156 on Wednesday morning.  Nike ended the day up at $86.13, still out of the money from the sold call, but getting a little too close for comfort.

The big news of the week was FDX, which after further research I realized has really a high one year beta of 1.66 and volatility of 1.37 and to top it off, the stock has been under a lot of pressure since earnings release last week due to bad economic data, still unresolved trade war issues and a variety of other company specific concerns such as the cost of fuel, capital spending needs, etc.  You typically want something less than 1 beta and volatility (the lower the better) for a good Iron Condor strategy.  Also, Zack's put out a strong sell recommendation on July 3 for FDX, which didn't help matters.

Almost immediately after entering the Iron Condor, the stock started to drop, opening on Monday at $168 and closing at $163.  On Tuesday FDX opened at $163 and closed at $160, putting me way under water on the put I sold at $165.  The put I bought as part of the Iron Condor was also in the money, but it only offsets about half of the losses you incur in the sold put because the strike price is lower at $162.5.  Fortunately on Wednesday, FDX closed at $161, recovering slightly so I closed out the call portion of the trade to lock in those profits and now need to take action on Friday since the put options expire that day.  The original premium on the Iron Condor was $1,590, which would have been my profit had everything gone as planned, but now I'm looking at a loss of about the same amount.  This is definitely not a low risk strategy if setup incorrectly and not carefully managed.

Friday will be interesting with a light trading session expected due to the July 4th holiday and the Friday Employment Report from the Department of Labor due out before the market opens, which could cause the market to move up or down depending on the result and the market's reaction.  I'm sure bad news will be good news and vice versa, so if the report is weak investors will expect a Fed rate cut of 50 basis points this month and the market will be up.  If the report is strong, then the market will sell off.  That seems to be how it works.  Right now, futures are up, pointing to a positive open which could be helpful.

The lesson here is that it's important to do your research, take a disciplined approach and don't "go with your gut" when trading options.  Also, with all option strategies, you need to actively manage your positions and risk manage.  There is no "set it and forget it" strategy.  Better to take a small profit consistently than incur huge losses interspersed with huge gains by taking a lot of risk on.

In my normal end of week post I'll report on how things unfolded with unwinding the FDX trade and I'll let you know my setup for next week.

Again, no fees on any of these trades with Robin Hood, which is very helpful to overall profitability.

Hopefully you found this insightful and it helps you Build Your Financial Fortress!

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