Hey trader,
Last Friday I had a trade sitting on a 100% gain. I held on for a little more, and it went to zero.
If you’ve traded options for any length of time, you’ve probably had one of those too. It stings more than a normal loss because the money was right there.
This week I traded the same SPY spread setup three days in a row. I paid 35 cents each time, and I set a different profit target each time.
A spread basically means buying one option and selling another against it. That caps both what I pay and what I can make.
The profit targets changed because the market changed underneath them.
Each day gave me a clue about where to get out.
When the market doesn’t tell me anything, I lean on one habit, and it would’ve saved me last Friday.
On Tuesday, price was stuck in a tight box, so I took a smaller win and got out.
Wednesday was different. The market could fall apart inside five minutes, so I held out for more.
Here’s what each day was telling me.
The Profit Target Number I Start With
Every one of these trades starts from the same baseline: I want to get in for 30 to 40 cents and get out at 80 cents or more.
Buy a spread for 40 cents, sell it at 80, and you’ve made 100%.
I keep the entry cheap for a reason: A low starting price leaves me room to fix a trade that stalls without blowing past what I’m willing to risk.
I also set both prices ahead of time.
On Wednesday, my entry sat as a standing limit order at 35 cents, and my exit sat as a limit at $1.
Nothing gets decided in the heat of a fast move.
Alerts are hard to get out quickly, and a price that’s already set doesn’t need me to react.
A win at 80 cents or more counts as a win.
Last week, my first alert trade hit its profit target, and members who took 80 cents or more locked in 100%.
I hold that 80-cent number unless the market gives me a reason to change it. That reason almost always comes down to how fast SPY can move.
What Monday and Tuesday Told Me
Monday opened with a cushion underneath price.
Essentially, that’s a stretch of room below the market where buyers tend to step in, and on Monday it ran down to about 762.
Moves tend to stay steady in that kind of market, with rallies getting sold and dips getting bought.
SPY also had a huge pile of options expiring that day at 770.
I bet on a pullback from there to 768 and set my profit target at 80 cents. The pullback never came.
A wave of call buying in the biggest tech names ran SPY straight through 770 and into 775 by the close.
My first spread ended up worthless.
I added a second one while keeping my total risk in bounds, and it closed out for 10 cents.
Tuesday looked similar on the surface.
SPY sat right under a ceiling at 775, with a cushion stretching down to 770.
Inside a box like that, rallies get sold and dips get bought. Price had nowhere to go, so I lowered my expectations.
I got filled on the 774/772 put vertical at 35 cents. I took 50 cents on SPY in the last couple of minutes, right into a drop.
That’s less than my usual 80 cents. For a market that couldn’t move, I’ll take it.
Why Wednesday Got a $1 Profit Target
Wednesday’s setup looked nothing like Tuesday’s. The cushion underneath price was gone.
Without it, a break lower tends to speed up instead of slowing down. SPY slipped below 772 early, then broke 770 fast right off the open.
My standing limit order to get in at 35 cents sat just above 770, waiting for a bounce. It filled.
This time I set my exit at $1 instead of 80 cents. That’s about a 180% gain on a 35-cent entry.
With nothing below to slow it down, SPY could reach about 760 in one five-minute candle.
I’ll admit I was being a little stubborn. When my session ended, the spread was trading around 82 cents with my $1 order still working.
When 80 Cents and $1 Both Make Sense
Holding out on Wednesday put me in an awkward spot.
My own rule said 80 cents was a win, and the market was offering it.
I told the room that anyone who wanted 80 cents should feel free to take it. There’s no certainty in this, only probabilities.
One member asked about closing half at 80 cents and holding the rest for $1. I told him that makes a lot of sense.
Splitting it that way can beat following my alerts to the letter. You already know the pricing, you take a little early, and you avoid some of the slippage that comes with alerts.
The first half does the heavy lifting. Selling it at a double pays back what I spent on the whole trade.
Another member did exactly that on Wednesday, selling half at 100%. From there the trade was paid for, and the rest could ride toward $1 with none of his own money left in it.
Selling half at a double keeps a winner from turning into a loss.
Last Friday, I ended up on the wrong side of that.
My exit starts at 80 cents. From there, I check how fast the market can move and adjust.
Tuesday’s box earned a smaller profit target, and Wednesday’s missing cushion earned a bigger one.
When I can’t tell which kind of day I’m in, I sell half at the double and let the rest ride for free. Friday’s trade would’ve looked a lot different with that one habit.
Set your exit before you’re in. Then let the market tell you when it’s worth stretching.
Brandon Chapman, CMT
Creator of Ghost Prints
