I got most of our desk in that play in BA yesterday. I traded it fairly well and managed to keep a significant core for most of the down move. However, watching back my tape and seeing how this is on my list of plays I have to load the boat in I really wussed out; this was a play that could have made my month. I had a great day, do not get me wrong, but had I been better prepared mentally for this down move I would most likely be writing this blog from Vegas. 🙂

But rather at being mad at myself for not crushing the play I got a few interesting lessons engraved in my head. I replayed the whole setup last night so that the next time I would see the opportunity I could just react to it. Well, today I had my second chance to execute on it. Unfortunately the trade didn’t work out as the market was too strong but I am happy I executed my plan very well. BA offered me a second day play and I was mentally ready to CRUSH it! Let me explain.

From trading BA yesterday I gathered three important pieces of information: CHEX was a huge seller in the stock, there was no institutional buying on the way down, and the stock traded down nicely when the market ticked down. Today the stock traded up nicely to about 41.70 and showed huge relative weakness at this level compared to the market. So I started a short with 2 lots with my out above 41.75.

During the first leg up in the SPYs to $91 BA could not stick a bid above 41.70. Then the SPYs topped off near the upper end of their average daily range temporarily and BA started to trade down slightly. I spotted CHEX come down to the 41.65 offer while the SPYs appeared to make a lower high around 90.70. So I added 2 more lots near this price with my out same as my original two lots. CHEX comes lower and starts to stick the offer at 41.60 and is not lifting. I short 3 more lots with my out on these three when CHEX lifts the 41.60. The SPYs start to come off a bit and CHEX steps down to 41.42. I start to lick my chops! I am waiting for the SPYs to trade and hold below 90.50 so I can short 3 more lots when I spot CHEX come lower.

CHEX comes down and starts to stick 41.45 offer and does a pretty good amount of volume. I also see CHEX selling big size in the SPYs and I am just hoping the SPYs start trading lower so I can fully load the boat. Unfortunately it didn’t play out. The SPYs held near that 90.60 area and started to trade higher and quickly. CHEX lifted 41.45 and I covered 2 lots. SPYs firmly made a new high and BA finally lifted 41.70. I covered my short for a loss and got long. The long worked out great as you can see from the chart. I ended up not losing much on the remaining short and made a chop on the long.

Even though the play did not work out I was very happy I stuck to my plan. Covering those two lots after 41.45 lifted kept me from losing on the trade over all. Had the SPYs traded through 91.50 and held, I would have made a monster chop.

Sure I could be mad about leaving a quarter on the table on 5 lots but the truth was that I had a setup I could crush. I didn’t care. Trading is a game of math, I know over the long run I am going to absolutely destroy these plays should they have all these characteristics. I can’t wait for the next one. Happy trading!

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