At 2:00pm today, Fed chair Jerome Powell gave a live report on the Federal Open Market Committee’s (FOMC) projection for inflation and economic growth over the next two years. Basically he said more of the same that he’s been saying for weeks: nothing is changing in the near future and the fed will continue to monitor the state of the economy.
But unlike the last two times when he spoke and the stock tanked – today it rallied like crazy. Why do people believe him today and not previously? Well, ain’t that a mystery… The market is illogical, but let’s try to go over what we do know. On the previous crash, the 10yr treasure note jumped up causing fear of inflation and withdraw from the market.
This morning had another factor that the stimulus ACH’s were processed. Maybe that adds a level of spending freedom to retail investors. I don’t know. All I know is that my 0DTE call spreads shot up suddenly through my stop losses.
So what are stop losses? Stop losses are predetermined max loss targets you’re willing to lose BEFORE entering a trade. It happens when trades go against you. We all lose sometimes. The key is to make sure they don’t wipe you out.
On Monday, I did not put a stop loss on a 0DTE NDX trade. 10 minutes before the bell closed, NDX shot up suddenly for no particular reason, making my $140 call credit spread close in the money by $7.54, and losing $614 on the trade.
So today, I learned. I closed my trades earlier stopping the loss earlier. By doing so, I opened new positions to further reduce my losses for the day. It felt bad and in the long run, these stop losses will save my account.
What felt extra bad was the market calmed down and closed OTM of my original options.