Relative Outperformance

From the end of November to December has been a much better time than the rest of November. I am still recovering from the very tough trading times from September-November but December has been an encouraging sign and something I hope to continue for the future.

From November 27th to now we are almost completely flat. In that time period however I have achieved about a 20% gain. That seems great, and it is relative to the index but still doesn't put me in the black unfortunately. There are some great lessons to learn. Staying hedged and scaling in and out of positions worked very well. Taking profits quickly was the better strategy during the volatility so it made trades only about a 1:2 risk to reward ratio but holding longer would have resulted in giving back the profit all together.

One example is Apple, I sold some Dec 90 puts and already owned some April 09 calls, the stock went up to 102, which should have been bullish but it ended up finishing at 100 unable to break 102. I sold my calls and bought back my puts at 102, which proved to be very good because the stock is now trading at 90 today for option expiration. This worked because others had the same mentality, people are looking for quick profits and are not fully convinced of any sustainable rally without seeing better economic data.

Buying at support and selling at resistance has been the name of the game so far. Patience is the other key that has been highlighted. If a certain stock gets away from you, let it go, it will pull back, or if not there are plenty others at lower risk entries to be able to manage. In this time I have gone with smaller position sizes as well.

Going forward I think in the short term if the S&P gets above 920 we will go to 975-1000 in short order. Until that happens I will stay fairly neutral. I am looking to get long the Euro as I missed the run from 1.26-1.47 which was frustrating that I didn't buy the breakout at 1.30, I wanted to wait for a retest but that never came. Again the good lesson here though is patience, had I bought in at 1.47 assuming it goes non stop I would have been killed as it has pulled back significantly to 1.39. My hope is that it flags here and finds support then continues and I will buy the continuation or low risk entry at support and start with a small position and add as it goes in my favor.

With all the things the government has done and with Obama coming into office I am hoping that will calm the market more and we have easier trends to follow, obviously it has already helped with the VIX collapsing lately(of course with expiration). I will wait till after expiration to make some moves with options since they are generally cheaper on monday following expiration.

I am keeping in the back of my mind that we could see a significant rally into year end as people try to improve their books and the market panics higher as people don't want to miss the move. We'll see what the market shows us.