I initiated a pre-market short in the SPY on Thursday June 5th at 193.50. I added to the position as it popped to 194 following the ECB announcement of some monetary stimulus. It was the first time I had shorted the SPY in about six weeks. The risk on the trade was about 40 cents from my average entry and was designed to take advantage of a two to four point pull back. Looking back over the past few months the best short term shorts in the SPY were following strength such as April 4th or May 13th.
The trade started to work in the pre-market, and when the market opened the first move was down as well. By 10:00AM the SPY was trading below pre-market support of 193.30 and there seemed to be a realistic chance that we might see a “trend day” to the down side. Around 10:30AM the price action became more bullish with the SPY moving about 50 cents off its low. And by 10:45 the start of a second up leg signaled that my short position was clearly not working.
At this point I still had a decent size open profit having covered 25% of the position during the initial down trend and another 25% when the down trend was broken. The question I was facing was should I flatten the position entirely booking a profit or let the uptrend run its course and cover the remainder at my original stop above 194.20. I elected for the latter course of action booking a small loss.
Position management can be a tricky thing. I had the opportunity to book a winning trade but chose not to. Why would I do this? Was my decision “correct”? The down trend from the pre-market clearly had ended. We are in one of the greatest bull markets of all time. Both of these factors supported the idea of getting flat the remainder of the position. A counter argument is the trade was still in the money and until it held above the pre-market high I was not proven wrong. (I re-established a short on Monday at 195.97 and currently am still short).
Steven Spencer is the co-founder of SMB Capital and SMB University which provides trading education in stocks, options, forex and futures. He has traded professionally for 18 years. His email address is: [email protected].
Steven Spencer is currently long BCRX, CROX, FB, GM, GMCR, GTAT, HTZ, RCPT, TSN, WAVX, XOOM and short AAPL, GTIV, HSH, KKD, KO, SPY, ZQK
One Comment on “Shorting The SPY (And Living To Write About It)”
I had exactly the same play in SPY. I covered 2/3 of my position in the move on open. But what I did next was really bad. I held onto the last part of my position and covered for a nasty loss around 194.50ish when I saw that it’s not going lower.