Rally=Undesirable Losses

Yesterday made me very irritated because insteading of gapping down and allowing me to cover my puts we gapped up and ran. This just puts me in kind of a no man's land position because we weren't over 900 yet and technically nothing would be confirmed till the end of day so do I sell my puts assuming we don't reverse? In hind sight that would have been the less costly thing to do as I sit here with a large loss on my SPY puts. I of course have more calls than puts but clearly my put position on the SPY was too concentrated so it made it act like I was much more bearish.

The whole point of staying partially balanced is to limit losses at any given time. My goal was to keep losses below 5-7% but today I gave back 12% which is unacceptable. This puts a large kink in the movement upward but the even worse effect is the mental one it has seeing my account drop close to levels I want to stay above which makes me less inclined to take risk. The even worse thing is if I let these losses continue and don't just follow what the market is telling me, which is that it wants to go higher. The other problem I had today raises the question of hard stop losses. It would have saved me over a third of the losses but again I am not sure if it would have been at a level really confirming a break of trend. I guess the thing to do would be to have it in place and hop back in if we failed to hold 900 instead of not having it there at all. I am generally fine with selling to limit my own losses but I will admit in this scenario I felt a little unsure. My idea now is technically we are supposed to test 900 before continuing upwards so I'd like to get out at those more favorable prices on my puts but I have to be willing to admit that may not happen and just cut the loss. That could be determined by tomorrow's Housing Starts number if it comes in better than expected. If by the end of the first hour we haven't broken below the gap up(if we do) then I will exit. I become concerned that once I exit of course I am much more exposed to the downside.

Right now futures are trading slightly higher. If housing starts are worse than expected we may give up most of yesterday's rally but I think it would have to be severely worse than thought for that to happen. What I hope for is that it is simply in line or slightly worse, so we sell off and hold 900 so the uptrend stays in tact and I can re-gain my losses to the upside.

Total Return for 2009: 149%