Hedged for Fed Day

So the much anticipated Fed decision day looms on Weds. What will they do? Cut .25% cut .5%, do nothing?

My goal is to get to a point where I don't care about what happens because I am diversified enough and almost neutral to the market. This is still very much a work in progress because I am still learning the most effective way to be neutral. I took a simple approach which I think is correct in terms of being delta neutral.

Before we get to that though, I'll detail my unsuccessful BIDU trade. I saw BIDU up in the pre-market about 3.5%, on a day that would likely have little volume and not much market movement I figured this would be more than most positions and would get sold off down to 2 or 1%. So I watched for a change in direction after the open, it presented itself, I got in with 10 put contracts (again lagged a little and had to replace my order still haven't looked into trade triggers nor do I know if I can trust them). I get in after it broke below support, it then reverses and bounces back up to a previous resistance line, so at that point it isn't broken, it come back down and I am back even.

After a little more range trading it goes up and then breaks resistance again where this time I exited at a $700 loss. This was good in that it fit my risk criteria and if it broke down to where I projected I would have made much more than I lost, So I got out with less than a 2% loss, and the trend was broken, however the bad part, is I lost money. The stock traded in a range ALL day, where at any given time I would have probably been up 500, or down 500 but still in the range. at the end of the day it ended up near highs, so I avoided a larger loss by exiting when my trend line was broken originally, even though it did re-enter later on.

I took on a few new positions. some Jan 40 calls on AKAM, it looks like it is going to be reversing and broke above 38 which was resistance and should hopefully fill a gap to 50, which is my target price. A close back below 38 will be a signal to exit. I got back into ACH, who now apparently reportered earnings, I saw it being bought and it got above 75 which it was having trouble doing before. I got in when it was above 76 and it came all the way back down but did manage to finish above 75 which is my line.

So, now I have 3 bullish plays going into the Fed rate decision, the fed funds futures point to almost a guaranteed .25 cut, but again we never know. I decided to hedge my position with some SPY puts. I currently hold 25 total long calls, I estimated an average delta of .5 each so lets say I have a total of 12.5 delta positive on those positions. I wanted to counter that, but I am still overall bullish so I went out of the money front month(since I probably won't hold them for more than a day anyways). I bought 25 152 puts each with a delta of -.27. That positions gives me a -6.75 delta, for an overall positive 5.75. This is obviously still fairly bullish, but much better than a complete long position in my opinion. Plus I am testing the waters to see how it works out.

AAPL couldn't finish above 185, RIMM is looking appealing though, AZO was brought to my attention of an Inverse Head and Shoulders pattern, so a break above 125 would confirm but it touched 125 and finished under 124, no go yet. I am still looking for relative weakness plays that I like the entry points on because a hedge will help me in this situation but not in general.

Have to say thanks to Brett Atlas for pointing out both YUM and AKAM originally.

Also, I have to say I think Bernanke so far is doing a good job and I like him better than greenspan in my limited knowledge, but I just couldn't resist putting that pic up once I found it. :-)