Is Trading SPX the Holy Grail?

My relationship with trading SPX credit options has been a bumpy road. My pattern of trading went like this…won, lost, won, Lost big, won, then lost even bigger.

The first thing that came to mind while I was trading SPX options was a quote from one of my favorite movies. “Choose wisely, for while the true Grail will bring you life, the false Grail will take it from you.” I’ve since died a thousand deaths grabbing that false grail, hoping it was full of money.

Luckily, I have traders’ reincarnation. I didn’t blow up the account, but finally stopped the bleeding it, and then self-assessed. I am learning to choose wisely.

I must say, trading is simply a hobby for me and I only treat it as such. I can approach trading differently than those who are trying to live off of trading. I do not have that kind of stress, nor do I want it when I trade. This hobby only supplements my income. I can put it down for as long as I want or never come back to it. I find the psychology of trading interesting as it makes me look at some of my thinking errors when it comes to my financial well-being, markets, and life in general.


Choose wisely, for while the true Grail will bring you life, the false Grail will take it from you. ~ Grail Knight (1989 Indiana Jones and the Last Crusade)

My Psychological Trading Flaw

Honestly, I’ve been trading options for over 20 years. I have never blown up an account. I have a few accounts open that I keep money in.

For example, the usual checking and savings accounts, an IRA account that I wheel with, a Think or Swim (TD Ameritrade) account that I trade credit spreads in, and an eTrade account I was trading SPX in.

The reason I do this is so if perchance I did blow one account up, it puts a breaker in place telling me that something is not working, to stop being a knucklehead and reassess. It also helps me to stay focused on each account that has different goals.

What halted me from trading SPX was that I was spinning my wheels and not making money. Instead of taking the time to learn, I got stupid and lost $13,000 in a matter of 7 minutes. That was 1/4 of that account. I went against every one of my rules and had hopium that SPX was going to turn around and reward me.

I was glad to get out at that because the rest of the day would have wiped out over half the account. If Freud was around today, there is no doubt in my mind he would be calling me an idiot and preaching that I let my “id” get the best of me.

Luckily, I have traders’ reincarnation. I didn’t blow up the account, but finally stopped the bleeding it, and then self-assessed. I am learning to choose wisely.

The minute you throw your money into the trading ring, you are a loser. Accept it. You are up against the best and brightest minds and the best algorithms around the world that are also in the same ring. They have been trading way longer than I have.

The best way to trade SPX is to watch and observe, have a system in place, and find your edge.

Watch and Observe

From my experience, every stock has a signature to it in regards to how to construct a trade around it. SPX is no different. You typically have a pop at the open either bearish or bullish. SPX is pretty volatile until around 10 am when it finally settles into slower price movements. The volatility usually picks up again around 1/2 hour before market close.

If you have access to level 2 data, you can watch the market makers moving up and down in regards to trades. There is a definite pattern.

Have a system in place

My system in regards to trading SPX is trading credit options spreads.

This is not for the faint of heart. I typically risk $3000 on one trade just to make $150.

The key to not losing your shirt on these trades is to put stops in place in case the underlying stock moves against you. There is no and, if’s, or buts about this. It is a must.

I learned the hard way about NOT using stops that are built into my trading platform. I was fooling myself thinking I could use mental stops. The problem with that is that the human emotions of greed and hope creep into the trade and you hope your trade is going to go your way. You then keep that trade open hoping it will eventually go your way. You usually end up losing more than if you would have put a mechanical stop in place. Experienced traders will both admit this and understand it. SPX ripped my face off and I lost $7,000 in a couple of minutes. I simply stared at the price and kept telling myself it was going to turn around. It did not and I lost another $6,000 in another few minutes. A total of $13,000 in 5 minutes.

The bottom line in regards to trading credit spreads is how to manage loss, learn from it, and move on. I am not always going to be a winner. Humility and humbleness is a good thing to have while trading. Yes, I will bow down to the power of SPX and thank SPX for being kind enough to throw me some loose change.

I am well-read and read books with a voracious appetite. have read many trading books. The majority are always trying to see you something more. The rest go into trading systems. Here is the problem with that. Markets change and the books do not. What I read in regards to the market 20 years ago does not translate very well how to trade in today’s market. Also, trying to trade as others do is futile. You have to figure it out on your own and what works for you.

I always get people asking me for my strategies and one that wanted to shadow me for free expecting the holy grail. They soon gave up. You simply cannot shadow me and expect to trade as I do. You first have to master your emotions, then learn to manage your money and your trades.

At first, I was using an SPX credit strategy written by a fellow trader. I was winning then would break even then would win again. I ended up letting my ego get the best of me while trading SPX. I had to be right in what I was trying to do and SPX was wrong.

SPX will eventually move back in the direction I need it to. Then I started other strategies with SPX on top of this. A disaster waiting to happen.

When I lost 1/4 of my account in 7 minutes, I became an emotional wreck. Yes, I was being an idiot and knew I had to stop. I have never blown an account up. I had to step back and reassess. I had had to break up with SPX. Really SPX it’s me, not you.

I feel that I am ready to dip my toe back into the SPX waters. After self-assessing, I realize that I was childish with my tactics and learned SPX is a tough cookie. There are Market makers and traders on the other end that are smarter than I am and simply have the patience to sit back and take my money especially when I have no money management plan in place.

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