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DailyPlay – Partial Closing Trades (SPY, AIG, CNC, UNP) – November 2, 2022

Partial Closing Trade

Investment Rationale

I don’t know if you joined me or not, but yesterday I shorted the SPX (I used futures) when the SPX traded 3908, the weekly cloud model’s Base Line that I had labeled as the first meaningful resistance of the current rally from 2022 lows. It yielded about a 50-point gain on the day, which I was happy to take as we go into today’s FOMC announcement (with one major Wall Street firm expecting a MASSIVE move to take place between 2pm ET and today’s close — they just have no idea which direction it will be).

Today brings significant risk to all investors across the major asset classes. I have been steady in my call that the Fed will do a 75 bp. raise in rates. Bulls are expecting only a 50 bp. hike and a softer, kinder Fed. I say they can in no way afford to take their foot off the pedal – upcoming elections or not. For once, I think they will actually do the right thing and keep to their stated goal of reducing inflation – helping to unwind the prior large, easy-money environment they allowed for well too long that caused this mess in the first place.

In my continuous attempt to protect you and do what I think is the best course of action, I am not going to suggest putting on a new position today. (And based upon yesterday’s fairly tight range after the market made its morning drop, we’d not be alone in waiting to see what the Fed is going to do.) I’d expect a fairly tight range for most of today’s trading until the 2pm announcement. After that, it could be a free-for-all – in either direction.

I do want to reduce some of our holdings that expire within 17 days, as we have several of them. Some are gains, some losses. It doesn’t matter to me. Given the possible huge move coming from the Fed news today, let’s just cut overall exposure:

  • We’re short 3 SPY Nov. 9th $365/$361 call spreads, up 76%. Let’s take one off this morning.
  • We’re short 9 AIG Nov. 18th $54/$58 call spreads, down 44%. Let’s take 3 off this morning.
  • We’re short 3 CNC Nov. 18th $75/$72.5 put spreads, up 95%. Let’s take 1 off this morning.
  • We’re long 4 UNP Nov. 18th $197.50/$212.50 call spreads, up 2%. Let’s take 1 off this morning.

I have absolutely no idea what is going to transpire later today. So, it makes sense to reduce holdings because whatever analysis got us into the trades originally may not have any meaning come later today. I’d rather be safe than sorry. 

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Tony Zhang