Get Ready for Rate Cut Week By Larry Benedict, editor, The S&P Trader Last week was tough. Overall, we finished the week down $2,028 on a one-contract basis. That result drops our accumulated YTD profit to $6,260 (on a one-contract basis). Losing periods are always challenging. And they can have you second-guessing the strategy. Yet I want to encourage you to stay the course… We’ve been through rocky periods before – and come out on the other side with even greater profits. Rest assured, I’ll be doing everything I can to get our performance heading back in the right direction. Let’s check out last week’s trades… 
(Click here to expand image) As of Friday, we’ve done 240 trades so far this year. And 81.7% have been winners. We’re also averaging a 1.09% gain on capital committed per trade. But our average holding period is just one day. If you made 1.09% a day and repeated that over the 252 trading days in the year, you’d be up 274.7%. I know it’s been a difficult week. But despite the setback, we’re still tracking along well overall for the year. And we’ll aim to quickly recoup last week’s losses. Now let’s look at some comments and questions I’ve received this past week… Mailbag William D. wrote in asking about those recent losses… How can we get ahead by winning trades of $200 plus or minus then losing $1,800 or so on the last trade of the week? And Larry R. writes: I love playing the vertical SPX spreads. We certainly had a nice run over the last two months. However, one loss wipes out two or three gains… First, thank you all for writing in… One aspect of our strategy that some folks find disconcerting is the relationship between the size of our wins and losses. And I’m not surprised… Most trading strategies revolve around riding winners for as long as you can and cutting losers early. Under this scenario, profits are often bigger than the losers. They also come with a much lower win rate than ours (which is currently around 81%). Our losers are typically bigger than our winners. But our high win rate puts us ahead over the long term. All the smaller wins we bank more than account for the losers that inevitably come our way. As I’ve mentioned, my subscribers built up gains of $9,538 and $11,456 in 2022 and 2023, respectively. And each of those years had its bumpy points. Additionally, we don’t just blindly stick to the same old formula… That’s why we reduced the spreads from 20 points back to 15 earlier this year. As the market became more volatile, we put a tighter cap on risk. I know that it’s difficult to keep with it when we’re going through a rough patch. But I highly advocate placing every trade that I recommend. Don’t pick and choose. Simply trade smaller than you might normally do. You can always build your trading size when you’re more comfortable with the risk. Other readers asked about the reasoning behind our exit strategy. Why don’t we take partial profits or losses during the day instead of holding to expiry? The simple answer is that throughout my many years of using this strategy, our existing exit strategy works the best over the long run. Often, trades move against us during the day but then turn back in our favor. If you close out trades early and lock in a loss, you’ll miss out on the many times the trade comes back our way. And if we bank smaller profits by closing early, those smaller profits make it harder to recoup the losses that come our way. It’s a balancing act between risk and reward. Generally, I only close out a trade early when I want to roll it. In that scenario, the trade is working for us. I want to lock in profits… and generate more premium by selling another spread. To see how that works, just look at the example last week… We received $286 (on a one-contract basis) for selling the 5515/5500 September 12 bull put spread. Then we rolled that into the 5565/5550 September 12 bull put spread. We bought back the 5515/5500 spread back for $15 a contract. Then we received $130 per contract for the new bull put spread, which we rode into expiry. That increased our overall premium to $401 total. And the good news is that we’re going to get a chance to recover in the week ahead… Quad-Witching Week This week is a quad-witching week – a special time that offers outsized trading opportunities. Four times a year, index futures and index options, plus stock futures and stock options, expire on the same day. (It’s the third Friday of March, June, September, and December.) Money managers square off their positions before those expirations, sending trading volumes and volatility higher. It’s a period that has traditionally been very profitable for us… Since we began doing quad-witching trades here at The S&P Trader, we’ve enjoyed an average $423.75 gain per contract. That equates to a 46.9% gain. And the average holding period has been just 1.3 days. If you want a quick refresher on how it works, please check out my special report here. I’m really excited about the action this week… Plus, a rate cut on Wednesday will add another dimension to an already volatile week… A Look Ahead A catalyst behind last week’s rally was the anticipated rate cut from the Fed. Of course, a big driver was Big Tech. Despite soft, weakening jobs data, the market increasingly believes that tech heavyweights are more immune to a slowdown than industrial-type stocks. But this still has a long way to play out. If a weakening jobs market accelerates into a recession, those same tech stocks will get pulled into the sell-off… So we’ll watch closely whether the Fed cuts by 0.25% or 0.5% on Wednesday. A bigger cut will likely increase recessionary fears. No matter what, it’s shaping up to be a very interesting week – and potentially a lucrative one. So please keep an eye out for alerts. And if you have any questions, comments, or suggestions, you can send them to feedback@opportunistictrader.com. I’m always glad to interact with readers. Happy Trading, Larry Benedict
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