Closed XHB for a loss

I've closed my bear call spread on XHB, the homebuilders exchange-traded fund.

The order went through with the stock at $16.04, or 3.8% above the price when the position was opened. The options went for a 74-cent debit, compared to  a 49-cent credit at the opening.

So the net loss on the options was 33.8%.

I opened the position on a macd bear signal. As I analyzed it, the stock had about 8% of easy downside. I opened the position on Feb. 25.

The stock reversed immediately after I opened it, and the bear signal disappeared from the macd, something that can happen because the indicator is based on an exponential moving averages, which give greater weight to the more recent prices. It's ugly, but it happens. And most indicators that rely on aggregating prices in some way will show similar behavior.

Looking back at chart, I see that the Feb. 25 low could be interpeted as a bounce off of support, and my error lay in not doing that interpretation. In my initial analysis I also discussed the possibility of an iron condor rather than a directional play, and at this point it appears the iron condor would have been profitable.


Notice:

The Private Trader market letter tracks my trades for my own accounts. Nothing in this weblog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this webblog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.