This is the fouth and final post in a series that we published over the previous weeks, tracking the hypothetical performance of the bearish butterfly trade as it would have been handled according to our guidelines contained in SMB’s Bearish Butterfly Video Series.

As of our last writing, the $RUT index closed at 823 and the trade was down 4.5% on planned capital with 29 days before expiration. The $RUT continued to be rangebound since our last writing, trading in the range of 815 and 830. No adjustments were necessary. The passage of time would have turned the hypothetical trade profitable and would have helped the position immensely. The $RUT had been losing its upward momentum which was very helpful at this stage. According to our guidelines, this hypothetical trade would be closed on Friday, February 24th, as we reached our target profit at that point. The $RUT was trading at 827 and the hypothetical position was up 17% on planned capital. The risk graph before the exit looked like this:

Although this type of trade works best in sell-offs, this type of trade would have worked out well in an unfavorable uptrending market. As we said in the past the Bearish Butterfly Strategy can win in most market scenarios if executed with discipline.

John Locke

Locke In Your Success, LLC

Please note: Hypothetical computer simulated performance results are believed to be accurately presented. However, they are not guaranteed as to accuracy or completeness and are subject to change without any notice. Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Since, also, the trades have not actually been executed; the results may have been under or over compensated for the impact, if any, of certain market factors such as liquidity, slippage and commissions. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any portfolio will, or is likely to achieve profits or losses similar to those shown. All investments and trades carry risks.

Risk Disclaimer

No Relevant Positions.

Greetings from Capetown.

I received this daily review from a solid developing SMB trader from which we can learn……….

I am so disgusted with how I traded today… probably the most mad at myself I have been in weeks… I made so many mistakes today…

• Overtrading… trading too much away from good prices… this is a huge problem in something like DPZ and APOL that got being persuaded into trading things I should not be like ZAGG… or SWN… I am my own trader I don’t have to be in the things that others are in if this is no MY PLAY

• Also RDC, HGSI I don’t need to participate in either… and the worst part is that my goal for the day was to be selective… I should be trading 10-15 stocks and no more as we got out of earnings season

• In too many stocks again.. I tried to be in every play on the open… and just end up trading more stocks bad..

• Terrible execution errors in APOL that cost me a good day and such stupid errors too

• I couldn’t even capitalize on the one trade that I made money in KMI for no other reason than losing track of it…

The only good thing I can say I did today was, after getting really pissed I got up for lunch knowing that I need a break and after leaving down 150 gross atleast I was able to make some money back and get gross positive and clear my head as well

Also something I am adapting that I think will help me is, after 11 I am looking through my list of stocks, the radar, volume advancers, strong and weak and just writing down 10-20 stocks that traded well and might offer opportunity.. this way I am going to be focusing on the right stuff and looking at these stocks exclusively the rest of the day.

Overall, I need to come in more focused, be more selective, and get back to focusing exclusively in plays where I think I have potential… I need to start cutting my tickets and stocks coming into march and be much more patient… and the one thing that really hurt me is trying to do too much on the open instead of keeping up one or two stocks I am trying to flip through 5.

Bella

At one point in your trading career you will sit behind or next to or near someone better than you.  The urge to be like them can be mistaken for actually making their trades.  They are not you.  Trading is not a copycat sport.

Yes you can coopt trades from that great trader near.  And great mentoring is essential to you becoming great.  Yes you ought to watch that star’s focus, work ethic and preparation.  Talk with him/her about how they think through their trading.  But you are you.  You playbook is your playbook.  Your PnL is determined by you making plays that make sense to you.

You cannot copy trade.  You do not have the bankroll of that great trader for his drawdowns.  He will get big when you don’t see it and that will be all the difference.  Yes learn from the pros.  But learn from the pros to be your own better pro.

Bella
One Good Trade

no relevant trading positions

SMB’s Options Tribe is an online community of options traders dedicated to sharing successful options trading ideas with all of our members worldwide. Each week the community will meet online for the primary purpose of watching live presentations made by veteran options traders and experts in the world of options trading. This week, Tom Sosnoff, Co-Founder of  both Think or Swim and Tastytrade.com provided us with his entertaining views of the market and options trading.

If you couldn’t make it to the live webinar,  here’s your chance to watch the recording.

To view the recording: Click Here

Make sure to look out for the invitation to next week’s Tribe meeting.  That invitation will appear on this blog shortly.

Seth Freudberg

Director, SMB Options Training Program

The SMB Options Training Program is a twelve month program designed for novice and intermediate level options traders who are seeking an intensive training process to learn how to trade options spreads for monthly income. For more information on this program contact Seth Freudberg:   sfreudberg@smbcap.com.

Sifting thru the daily trading reviews from yesterday it was clear that many traded VVUS. Here in Capetown training former elite athletes and now traders I work to make one point. See your trades as patterns. Trade the set up and then accept the result. Trading is not about being right. It is about controlling your risk. And finding patterns where your risk/reward for you is exceptional.

Match Play winner Hunter Mahan teaches us the importance of this mindset for elite performers (traders):

“If I wanted to be the player that I felt like I could be, I was going to have to change,” Mahan said after capturing the WGC-Accenture Match Play in a 2 and 1 win over Rory McIlroy. “I had to take it easy on myself, not try basically not try so hard.
“I didn’t want to have my identity stuck with my golf score. They needed to be separated, and I needed to play golf because I enjoyed it and accept the result and move on and not get attached to it.”

One of our SMB Traders sent a “proper” (as we say in South Africa) review of his VVUS trading. He summarized his trading precisely with this thinking……….

I traded 22 tickets on VVUS and there were about 7 distinct trades I made
1) pre-market scalp
2) open drive at 23
3) fade the ticks to buy a pullback during an open drive, move from 23.80 down to 23.30
4) buying into a pullback after 10am, after it puts a top at 24.83
5) intraday resistance breakout at 23.50
6) one last try for the big move to the long side: taking a feeler and scalping the range from 24.40-24.80
7) getting short when the range fails and confirms a lower high for the afternoon sell-off

Perhaps thinking of your trading like this will help your trading.

Bella
One Good Trade

no relevant trading positions

I tweeted early this afternoon that it looked like VVUS had put in an intra-day bottom. Here is the tweet.

i think bottom is in for $VVUS today. a hold above 20.25 should get it trending nicely

Here is a pic annotated that sums up what I was thinking. The long trade didn’t work out as VVUS failed to get above 20.25 and eventually made a new intraday low knocking out the 19.50 support area. This is a stock that will offer a lot more short term trading opportunities in the days and weeks to come. I will continue to monitor it closely.

Steven Spencer is the co-founder of SMB Capital and SMB Training and has traded professionally for over 15 years. His email is sspencer@smbcap.com.

No relevant positions

The following news was released after the market closed.

16:31:20 FDA Panel Votes 20-2 In Favor of Approval For Vivus’ QnexaVivus, Inc. (NASDAQ: VVUS) received excellent news on Wednesday as an FDA advisory panel has voted 20-2 in favor of approving the company’s weight-loss drug Qnexa. The panel’s decision is non-binding, but it is highly likely that the FDA will follow the panel’s positive recommendation.

link to this article

I just received the following text from one of the traders on our desk

“im such a ass tho..i saw VVUS holding 20 bid for size and i had 1000 lined up at 20.05″

The trader did not take the trade. He had identified an excellent risk/reward setup well within his risk parameters. He failed to pull the trigger because he had a tough regular trading session and although he had just made some money trading HPQ in the after hours it had been very stressful as his initial entry on a short was ill timed. He didn’t want to feel any more stress today.

Here is the after hours chart for VVUS. It traded up more than one point after he identified the long setup. Once you have trading skills, have a good understanding of price action and have developed a series of well defined trading plays what remains is execution. Execution ends up largely becoming a function of your energy, focus and emotions. Today our trader was focused but he was tired and he was feeling timid due to some recent trading stress. So he was unable to execute.

Steven Spencer is the co-founder of SMB Capital and SMB Training and has traded professionally for over 15 years. His email is sspencer@smbcap.com.

No relevant positions

*live trades discussed in this post took place in T3 Trading Group, LLC a CBSX broker dealer

SMB Capital Stocks In Play Call Review. Each morning before the market opens we discuss the stocks that we believe will offer the best risk/reward trading opportunities intraday. Today’s review featured GRMN, MOS, NFX, MGM, DELL, INTU.

February 22nd gameplan

Steven Spencer is the co-founder of SMB Capital and SMB Training and has traded professionally for over 15 years. His email is sspencer@smbcap.com.

No relevant positions

*live trades discussed in this post took place in T3 Trading Group, LLC a CBSX broker dealer

Please join us this Thursday February 23rd at 4:15 pm EST on a Q&A session with Mike Bellafiore,author of the “trading classic” One Good Trade.  Mike will be hosting a question and answer session for traders.

Come and ask him whatever you are most curious about.  What is his favorite set up?  What is his trading style/philosophy?  Why did he start SMB Capital and then SMB Training?  What is the biggest mistake new traders make?

We hope you can join us.