Ben's Trade Journal

Monthly Strategy Update

2010-02-27T21:51:00.000-08:00

I plan on doing updates at the end of each month on how the strategy is performing and some thoughts about what is working and ways to improve it.

After a week of action the market finds itself essentially flat. I had a rough start initially but my strategy has done decently so far but obviously one week of testing is nothing sufficient to base a conclusion. Sell disciplines have essentially been the difference so far which will likely be true moving forward as well.

Market wise I am fairly surprised we have held up so far even though friday volume was very light. Economic data is getting progressively worse and the market has stayed bullish, reversing a fairly large drop on Thursday. Overall I think investors are in a "buy the dip" mode but I am predicting a more prolonged pullback over the next month or so as we get panic that positive ecnomic progress is slowing down. I of course could be wrong and I will watch the market to tell me the next move and attempt to position accordingly with the strategy.

Total Strategy Return Since Inception: 2.17%

Follow-Up to 2009

2010-02-23T21:15:00.000-08:00

So overall 2009 was a decent year. I am disappointed in how it ended though. I ended up 117% overall however considering where I was that is not very good. The Amazon trade was a big loss that should not have happened and it was hard to recover the rest of the year. The good news though is that I learned a valuable and expensive lesson and will trade smarter because of it. There are some key take aways from 2009 I think:

In general, I think I managed risk fairly well considering I was essentially trying to short the market since July and still managed to make gains until AMZN. I over traded for the market environment we had but obviously in the moment it is harder to be objective and hindsight is 20/20. That said, I did fully support and participate in the rally from March-May and then started to become skeptical but a major pull back did not materialize.

For 2010, I'd like to see myself with more consistent performance with smaller draw downs and less trading. That is obviously part of the plan with my new strategy so we will see how it goes. I have to put full faith in my trading system to truly test its worth so I will need even more patience and discipline. I often wonder if making it completely mechanical would be ideal but at the same time I think I have become disciplined enough over the past 3 years to intervene at my discretion.

Key Metrics to track for 2010:
Theoretical vs. Actual Expectancy
Drawdown analysis
Standard Deviation of portfolio vs. Index
Absolute and Relative performance
Attribution Analysis
Average Capital at Risk

I am looking forward to this challenge and hopefully a good year, but even more so I will look to learn from things that don't work. Ultimately I want to have a sustainable long term strategy that can return consistent profits in different market environments. Stay tuned.

Strategy Launch

2010-02-21T19:42:00.000-08:00

I have developed a potential strategy I feel could be fairly profitable that I will be officially launching tomorrow. I would like to track the strategy performance over a year and hopefully develop a successful track record. This is a more conservative and passive approach than my typical trading so it will be interesting to see the results. It has the potential for great success in terms of theoretical expectancy but of course the reality could be different which is the whole point for testing it.

I won't go into specifics at this time for obvious reasons but the main focus will be on risk management and the exploitation of market behavior. The strategy is fairly simple yet not necessarily obvious which I think could be a good recipe for success.

I will track its performance on here each month and update with some commentary and thoughts about what tweaks could be beneficial. I will look into ways to audit the performance so it can ultimately be verified if it is successful.

Total Strategy Return Since Inception: 0.0%

Make or Break Point

2009-09-25T01:23:00.001-07:00

Some fairly in depth market analysis if I do say so myself. ;-)

http://davianletter.com/blog/2009/9/25/make-or-break-point

Total Return for 2009: 143%

New Home

2009-09-13T15:41:00.000-07:00

I will basically be moving my blog to a new location for the foreseeable future. Since I have been writing articles for The Davian Letter, I decided to also post my blog there as well along with some other great traders so we can have a great community of market analysis and trade commentary.

Follow the link HERE to read the new blog.

Total Return for 2009: 135%

Breakdown

2009-09-01T20:53:00.000-07:00

MARKET ANALYSIS

So we finally had the break down of the flag. It was somewhat suspect yesterday as we bounced off of old support at 1015 and rallied into the close making me wary of a continued move down. This was not helped by the initial move up today as well. It was fairly interesting because clearly people were just waiting for higher prices to sell into, because pretty much as soon as we hit 1025 we sold off the rest of the day finishing on the lows. Technically that is very bearish. The VIX spiked up today moving back above the 50 SMA and will likely test 30 in the short term.

The tough thing now is the breakdown and nearly the whole short term move came in a single day as what usually happens so if you weren't positioned for it initially now you need to wait. Ultimately I think we test 980 again, but I will look for a rally to short into again. In the short term though the MO is near its most extreme oversold levels meaning there is more risk to the upside than downside however that does not mean we can't sell off more.

Ideally I'd like to see a gap down tomorrow, and I'd buy the open. I want to see a re-test of 1015 before I get short again. In the longer term we may be forming a Head and Shoulders pattern on the S&P but that way too early to tell. The funny thing is that most of all the metrics today were positive yet the collective market decided to sell it off. It is like they are coming to the conclusion I came too a month ago all at once. That is the inefficiency of the market and if you can anticipate shifts in psychology well you would be very successful. Obviously I may be correct in the long run but the reality is that I missed a near 20% rally because I was too early in my prediction. I may keep getting proven wrong but I think metrics will start to turn downward again shortly.

I decided to lighten my shorts into this move like I had planned. I got out a bit too early in the day because obviously finishing on the lows would have benefited my positions, however it was still a decent day. I am now long biased and will look to get short again into a rally. I just bought corn futures again as it is near support. I likely should have gone long soybeans and short wheat as a hedge but we'll see what happens. I feel slightly too long at the moment but will have a tight stop on it.

Total Return for 2009: 144%

Summer-End Stall

2009-08-30T18:17:00.000-07:00

MARKET ANALYSIS

The past 5 trading days we have seen almost a perfect flag. Nearly identical ranges and finishes generally means we are setting up for a large move once we break one way or the other. Depending on who is looking at this chart depends on their opinion on direction. Bulls will assume this is a continuation pattern getting ready to move higher and the bears will take this as a sign the market is starting to top out unable to move beyond 1035. In reality, no one knows the future so it is best to wait until it confirms one way or the other.

The McClellan Oscillator is also not really helping us as it is in the middle of its range so risk is equally skewed both ways in the short term. Most Bullish percentages are still at very high levels however oddly enough we can see that the Nasdaq 100 which led the rally has sold off significantly while the S&P 500 has held up.

This could make the S&P the better play to the downside if we do pullback as it would have more to fall. I am personally still skewed bearish at the moment on the S&P. Even though there is generally a bearish tone to the market this time of year I feel like some of numbers we have seen lately could become less rosey. My macro view is we see the end of the real estate season which will slow down the entire ripple effect it lends to all sectors. The stimulus injected into the economy has helped sustain it to this point and I understand it is like they are trying to push start a car where the stimulus gets us through until we actually get going on our own. However, it can only do so much. From my own metrics employment may improve over the short term as more jobs seem to be getting posted even in the finance areas even though still limited. I still think we hit 10% measured unemployment in the long run and don't recover for a while. Eventually the lack of ability to spend will catch up with companies even with their cost cutting measures to help numbers last quarter.

TREASURIES

We have a divergence again in terms of equities and treasuries. I am kicking myself that I did not buy /ZN after it collapsed on friday. It pulled back to an area of support and I missed a decent snap back rally that would have been a very nice gain but since buying /ZN is essentially bearish on stocks I didn't want more risk to the downside. I find it curious /ZN sold off so much if we are planning an extended pullback, however it could still be feasible we get a pullback and people are just starting to demand higher rates. I was looking to buy at 116.035, it is currently 116.305. 270 ticks could have made my month, but oh well that happens. This was a perfect retest of the flag breakout so we should continue higher from here pointing to downside in stocks. Until we get evidence of real inflation rates are likely to stay at the lower end of the range.

FOREX

Most major currencies were unable to make new respective highs and lows on the latest rally attempt, which is another bearish divergence. Even though places like Australia remain relatively strong they will not be immune to another downturn if it comes. Although AUD does remain in its uptrend it could be starting to signal a consolidation or reversal. It could be a good pair trade to go long AUD/USD and Short EUR/USD as the hedge.

COMMODITIES

After testing 75 like I assumed would happen oil was rejected fairly quickly back down and has yet to make any significant rally since. The other materials have also sold off recently as the prospect of no real demand or inflation coming on for some time likely took a bit of wind out of the recent rally. I am still a long term bull on commodities overall but think we could pull back here along with the rest of the market. Many people seem to like gold however I really think another metal would be a better choice because it really has no industrial demand. Sure people may want to own it for an inflation hedge or an end of world type scenario but I'd rather have something that is both physically needed for a use and affected by inflation such as silver or platinum or copper. The soft commodities have somewhat lagged. Corn tested 320 again but did not successfully break back above 330. We could stay in this range for the time being but it may be difficult for it to sustain a sell off in equities and if we see a breach of 320 again it could woosh to 300. I doubt it stays there for long though and I would be a buyer at that level. Again long term how can you argue with a growing population and decreasing land and resources with increasing demand?

OPTIONS

With the indecisiveness of stocks my account has made minimal fluctuations but also minimal progress. Overall I made a 1% gain on the week but that basically came on friday when a majority of my longs and shorts were working nicely. Again, a push is a win but I'd like to be more efficient with my time in market. In my recent article on position sizing, I talked about buying puts on IBM. This is currently one of my short positions and I like the setup a lot. It is rolling off 120 nicely, my OTM puts have suffered a contraction in volatility but my target is 112 with an exit on a close above 120.
Visa is one of my long candidates and the chart looks nice as well. It is nearly at a new 9 month high. If it can take out the previous high we could see some good upside. If it gets over its longer term resistance at the IPO price of 75 things could really take off however I suspect that won't happen until we see a more substantial recovery at the same time. I am targeting 75 in the short term with an exit below 68.

I still have long calls on LVS with a far OTM strike short call hedge. For my other bearish positions I am long SDS and SRS calls. If we get a decent pull back in stocks I wll look to lighten my bearish positions. With 18 days left till expiration I may start looking at good stocks to sell premium on into next week in both directions.

I know I have slacked in my posting lately due to being busy with some other projects and travel but I will be more active again next week once I get back into town. As I write this futures are selling off a decent amount down 6 points. We'll see how Monday shapes up as there isn't a ton of economic data coming out in the US.

Total Return for 2009: 139%

Reversal of Fortunes

2009-08-22T18:44:00.000-07:00

MARKET ANALYSIS

After the confirmed breakdown across multiple benchmarks we have essentially rejected that move down and reversed higher much to my dismay. After the break down I did flip and go long which worked out well, then I decided to go short biased again as we were approaching the 990 level. As we can see the market has since made a new higher high:

This was also confirmed by the VIX breaking back down as well. The only thing to note is that that VIX is testing the top side of its downtrend so we could see a bit of a pull back into next week but besides that things look poised to keep going up as much as it puzzles me.
From here we look to not have much resistance until 1100 on the S&P. With existing home sales coming in better than expected that should really give the bulls confidence. My concern is once we get out of the housing season things start to turn down again but who knows. It would be stupid for me to doubt the recovery the entire way, this could be the forward looking and turn before unemployment that people expect. Technicals suggest a rally so I may as well go along for the ride until shown otherwise.

Of course we saw a huge contraction in volatility before expiration, big surprise right? 15% drop in the VIX in a few days means the market makers are printing money. The only divergences to note is the fact that materials did not make a new high and they have been leading the recovery so far so it will be interesting to see if they lag now or pick up again in the coming weeks. Also the 10 year treasury did not sell off significantly when a new high was made meaning that the bond market is clearly not expecting inflation at the moment otherwise they would be demanding significantly higher yields.

It's annoying to see my account make a decent advance then give it back over the week. I guess being break even for a week isn't terrible but isn't what I'd like to be doing ultimately.
COMMODITIES

Crude oil made a new high breaking out on this most recent advance after we saw a draw in inventories which was unexpected. Corn has somewhat lagged after the crop report and sell off in equities. This again could mean it is a relative weakness play or we could see a more acute rebound as it catches up. I may look to play it to the long side if it gets back above the 330 level or test 320 again.
FOREX

We did see some strength initially in the USD as we broke down but have since regained a decent amount. However, most currency pairs are still not at their recent highs/lows which is another odd divergence. AUD came down near support but not quite far enough for me to buy it but as we can see others wanted to own it. I still feel like it could be the currency to own if the recovery continues.

OPTIONS

Expiration came and went and my short August options expired worthless. In both instances where I sold options it would have been much more profitable to buy long positions in the direction I wanted but oh well. On Monday the capital held in margin will be available again so I can use it to take on more positions as they present themselves. I am still inclined to keep my position sizes small until I get on a better track record. I am still in my LVS position and V position with calls, however I am more short biased with SRS, SPY and IBM and SDS. I will likely add a call position on monday or cut a short position to help balance myself out more.
I am highly annoyed I didn't get into FSLR puts like I had planned. There was only a brief moment to be able to get in but it has since collapsed 20 points.

I need to spend tomorrow creating a watchlist for the week of potential candidates. As of dips should be bought again. I just wish I could shake the feeling that I will get whipped out again as soon as I get long.

Total Return for 2009: 138%

Sell the Rips

2009-08-17T23:00:00.000-07:00

MARKET ANALYSIS
We can see as evidenced by the confirmation in the VIX that things finally broke down today. Asia was down quite a bit overnight and we gapped down about 2% and stayed down all day. Across the board on multiple stocks I finally saw breaks of previous uptrends. Notably in the financials and materials and tech sectors which have led the rally up until this point.

This gap down was significant because it definitely signaled a shift in sentiment rather that just a normal pullback. Even when better than expected readings came out from the housing index that did not lift the market at all. The bright side for the bulls was that we did not break down going into the close even though we tried but we did finish near the lows. People may be coming to the conclusion that we have experienced a period of better than expected readings but that may come to an end shortly. I of course could be wrong but I will wait until better readings come in before I change my view point. Until further notice I will be looking for rallies to short and then selling into weakness. This is likely what most people are thinking as well so it could help it become a self fulfilling prophecy.

Even though I plan to sell rips I am cautious to be excessively short right here as that move down did take us into oversold territory according to the McClellan Oscillator so this skews risk to the upside.

Ideally we could see a gap down tomorrow and then buy the open on the expectation we reverse but as of right now the futures are pointing to a bounce tomorrow ahead of housing starts. If we get better than expected starts it could cause a rally, however I do feel like it will be misleading because it is really the end of the buying season so the good numbers are unlikely to continue in my opinion.

FOREX
Dollar strength essentially across the board weighed on materials and commodities today. We can see that the EUR/USD finally broke its uptrend.

The AUD/USD sold off but is still a relative strength candidate holding its uptrend. I would like to buy near these levels but feel like it could be hard to fight the trend of a down market even with their stronger than normal economy. If I do get in I would like to buy it around .815
It was more of the same across the rest of the currency space as we saw a flight to quality fortold by the flag break of /ZN which continued higher today as well.

COMMODITIES

As you can imagine the strength in the dollar and weakness in equities was not good for the commodity space especially with the prospect of continued weak demand in the future. We can see things looking fairly similar across the commodity space.

I remain glad I exited my long /ZC position at 335. It touched 311 today before getting rejected and reversing back up. Had I been around I actually would have liked to buy it close to that level because I expected this type of action. Oil broke its recent uptrend, and is near longer term uptrend support which should be at 65. If this level breaks though watch out below. Ultimately unless things start to turn bad fairly quickly I doubt we really break down a lot but instead stay in a range. This could be an opportunity to do some swing trading in the futures.

OPTIONS
Interestingly enough the day that signals me to be short, I have reversed my bias to long. I cut my ADM and WFR positions at the open, along with my SPY puts which finally filled no thanks to thinkorswim. I sold half of my SRS calls after we saw a 10% move in a day which is one of my general rules. With FAZ spiking I bought back my short puts for .05 and decided to flip and sell some calls expecting somewhat of a reversal before option expiration.

I am still holding my V calls just to balance out my bearish positions and I am still short UYM calls which should expire worthless. I did nothing with my LVS position, it lost some decent value today but is still profitable so I will let it go. I have noticed that there seems to be quite a bit of buying in DSX at the 12 level, so I would like to see it ultimately get close to there again and i will go long some calls. Considering the recent trend it is hard to not go out and go long some good names thinking you are getting a bargain but if we really are starting to roll over they will keep getting cheaper. I think we find support at 970 on the S&P at least temporarily if we touch it, then test 995 from the underside. I have my eye on some good candidates to short on a good rally. So I'll post those up when I enter, stay tuned!

Total Return for 2009: 141%

Outlook: Cloudy with Chance of Falling Prices

2009-08-15T17:54:00.000-07:00

Friday brought some interesting action in the markets which makes things still uncertain going forward. In the morning 30 mins before the open I had noticed that /ZN had finally broken a month long flag to the upside which pointed to downside in stocks. I tweeted as much and once we opened we held up for a bit until we got the consumer sentiment numbers which were worse than expected on top of jobless claims being worse and CPI coming in essentially flat with no inflation in sight.

We can see that the EUR/USD has pulled back to its trend line with recent strength in the dollar. If the rally in equities is likely to continue we need to see this level hold. If it happens to fail it would be a good idea to be short the market in my opinion. If we look at /ES daily action we can see the sell off after the release of consumer sentiment, we then flagged all day near the lows. Those who day trade and know the market profile would say that this generally means the market is "accepting" this new price level which is significant because it is back below the 1000 level. However, we can see right at that 3:30 mark the market rallied into the close. This rally is suspect in my opinion due to the fact that it came right at a time stamp indicating program buying/short covering. Nonetheless it did move 10 points in 30 mins. Typically when this type of action occurs the market profile believer would tell you that the higher probability event is a break down from the flag.

We can see clearly /ZN break it's recent down trend and more significantly its long term down trend of the past 6 months which I hadn't noticed until I zoomed out. This is a big tell in my opinion and generally points to downsie in stocks but sometimes the correlations do not work and it is just readjusting risk. However, if we use history as a guide it has made a decent move after breaking channels. Lastly, we can see that oil failed to make a new high and is dangerously close to breaking its month long up trend as well.

Because some of these other metrics have not necessarily confirmed what /ZN is possibly telling I wouldn't be racing out to go 100% short(that would be stupid at any time). However I would be careful initiating any new long positions at these levels that aren't extremely strong candidates.

It is always frustrating to watch your account flucuate especially when you have larger gains in the beginning of the day and give back most into the close. On the bright side I guess I can be glad I had a gain on a down day even if it was small. If I was able to be break even on down days and up on up days I'd be rich! Alas that won't happen but I can do my best to try.

My longs actually seem to be hanging in there fairly well. V and WFR have done decently with V slightly above my exit of 67.50 and WFR holding its support level nicely. Much more movement lower and I will have to cut them. ADM will likely get the boot on monday as it has acted fairly poor all week and is dropping below support AND now the 50 SMA meaning people do not want to own it and I likely shouldn't either even though I have long dated options.

Even though the McClellan Oscillator is showing that we have worked off a decent amount of our overbought condition the bullish percent is still in extreme territory. We can see below that the bullish percent on the Nasdaq 100, which has led so far, is potentially topping out with a double top at its extreme reading.

If this does set up to reverse I will still need some long plays. The tough thing is that most stocks will get dragged down regardless and the shippers seem to be doing poorly even with the market going up. The hard thing though is that the Baltic Dry Index has been flagging and is currently at the lower end of its recent channel and at the support line of its longer term uptrend(which unfortunately can't be seen).

This could make it a lower risk long entry as a hedge if we do start to go down. I had a synthetic long position in DSX that I had to cut with a loss recently so the shippers are not seeming too great to me in the short term but I like them long term.

My short options are currently in decent shape to expire worthless however I do expect the usual expiration week shenanigans. Currently I am short OTM puts on FAZ and OTM calls on UYM. In addition I am long puts on SPY and long calls on SRS to balance out my other long calls on ADM, LVS, V and WFR.

LVS has worked nicely so far, not as nicely as if I had gone only long calls but still a nice gain regardless and with the uncertain nature of their contract negotiating it would be stupid to not be hedged in some sort of fashion. I may not have chosen the best method for hedging but that is what learning is all about so I can do better next time.

I cut my /ZC position which so far has been a good move as it broke back below 330. I may look to get long again either soybeans or wheat in the near future but I will see what shapes up next week first.

Past couple days I gave back a percent then gained it back friday so I am where I was before. I guess as long as I don't lose money like I have recently I'll be in decent shape to make more of a recovery.

Total Return for 2009: 138%

Dip Buying Continues

2009-08-12T22:43:00.000-07:00

Even with the technical break back below 1000 buyers emerged again today taking us back above that key level. The Fed left rates unchanged, no surprise there but did announce they would end their purchases in short order. This raises the question of if they think the recovery is actually starting and the even bigger question of if it REALLY is starting.

Even though stocks advanced there were some mixed signals at least in my positions. V actually ended up down on the day which is supposed to be my relative strength candidate. ADM is pushing my loss limit and looks like it may be on the verge of breaking down. With the crop report coming out today it apparently was not favorable for their company. /ZC was actually fairly quiet after the announcement, we had the initial sell off then rally, which I think point to further upside in corn in the near term. My futures position was essentially what gave me a gain today.

Currencies seemed to catch a bid at their trendlines today, both the Euro and AUD were bought. I had wanted to get into the AUD/USD but still don't have funds transferred to my forex account.

Financials and materials were fairly strong again across the board. I think I will wait for a true direction to unfold until I move any hedges around. In the mean time if we remain range bound I will get to collect some more premium wih my short option positions. LVS had a nice pop today but left me wishing I was more directional. I hope volatility contracts and if things are looking up in the market I may buy back my shorts and let my long calls ride. Jobless claims could be a catalyst in either direction tomorrow. I have noticed that job posting have increased on local websites fairly decently which could signal better things to come in the next few weeks.

We shall see what happens, either way we go I hope my positions do what they should.

Total Return for 2009: 138%

Pride Before The Fall

2009-08-11T22:52:00.000-07:00

I made a gain today! Sad to have to celebrate something that should be a regular occurrence but I have to take it one step at a time. However the bad part was the fact that I decided to take on some more long positions to help even myself out as my short bias was doing well today. I assumed the hedges would help insulate from a move back up into the close like we have normally seen. In today's case the tide seems to have changed, we did not make a significant attempt to rally and actually finished near the lows below 1000. This is the signal I was looking for originally. The paper profits given up were mainly the cause of my new long positions losing money into the close. Obviously I can't pick ultimate bottoms and they were at low risk entry points, but finished right at support.

I will likely be quick to cut longs because even though I like to try and pick relative strength candidates 75% of stock movement comes from the index and we look to be finally setting up for a decent pull back if some things start to confirm. The $VIX traded right up to the 50 SMA and bounced off as resistance. If we take a step back and look at the chart we can see if we get above 27.50 there will likely be a decent reason and cause a decent sell off.

We are in a precarious spot right now in the markets where things are pointing to bearish action but nothing is totally confirmed. The /ZN has been flagging for the past month and looks like it may break to the upside which would likely be bearish for stocks. The EUR/USD has come off it's highs but is currently sitting at nice uptrend support. Oil also failed to make a new high but is sitting at a recent diagonal trendline. If these start to break down it will likely point to more downside.

I did take a couple long positions, all were longer dated options because I ultimately do expect a pull back. One was Visa, which has held up very well and was sitting at a low risk entry point. If my own card use is any indication this company should be in great shape. I got long some Dec 70 calls. 67.50 will be my line in the sand even though it is longer term.

I also decided to get into WFR, which may be a stupid play but if materials do happen to continue along with tech it could play some catch up. Not a relative strength candidate per se but a good place to manage risk. Went with Oct 17.5 calls.

Lastly I decided to attempt a speculative but semi-hedged play in LVS. There is a lot of talk surrounding these covenants and whether or not they will be renegotiated or cancelled. The theory is that if they go through it should be worth a 5-10 dollar pop in the stock. I decided to take a long position in the event this happens but also sell a strangle against it so that if it doesn't actually happen all it needs to do is finish within my range and I should limit my losses quite a bit if not eliminate them. My range is from $6 to $22.5. I am slightly limiting my upside if I happen to be right but not much because again the amount the short call gains should be mostly offset by the amount the short call loses (assuming it doesn't get all the way to 22.5). I gave myself until December for this to play out which will hopefully be enough time.

Two of my positions could be affected by the USDA crop report tomorrow. One is obviously corm futures but the other is ADM. I actually don't know if ADM benefits from higher corn prices, I would assume so as they could pass prices on to customers more than the cost they incur meaning higher profit margins. I will be curious to see how the report is because ADM held up decently well today which could be a tell in how people are leaning for this report. Futures have held around that previous breakout level of 330 for most of the day.

Currently S&P futures are slightly down so I think tomorrow could possibly be a very telling day for the next intermediate move we have.

Total Return for 2009: 137%

Recovery In Progress

2009-08-10T20:53:00.000-07:00

After my recent terrible performance I have since scaled back my positions and decided to sell some options. Taking a few higher probability trades should help in terms of confidence and help me make some money while I take a break.

Overall, I do still ultimately think we may have a significant pull back coming shortly, however in staying with discipline it makes no sense to hold through some large losses for the hope of a reversal that doesn't come. Just look what happened from 870 to now, barely a pullback in sight and not significant one at that. I decided to take some higher probability short biased plays instead. Since materials have ripped lately and started to stall I thought it would be a decent play to sell some OTM calls on the UYM with only 10 days to expiration. I did the same strategy for the financials selling OTM puts on FAZ. They are working so far and clearly I would be making more money had I just went long put and call options respectively, but given my recent history I would rather be a seller and have the greeks working in my favor.

I still have calls on ADM and am long /ZC again. I took a bit larger position in corn this time around however once I found out about the USDA crop report coming on weds I decided to scale back again ahead of the announcement. The old me would have likely held but the smart thing to do is to wait until after the announcement and see how the market reacts and then act accordingly. This is the higher probability trade, if it gaps up then that tells me that I should be able to buy dips. If it gaps down I take a smaller loss which is what I need to do at the moment.

I am content to sit on my hands until expiration unless something very compelling presents itself or I need to exit a position prematurely. I may take on a play in LVS but other than that I am not looking at much long until we get a decent pull back.

Total Return for 2009: 134%

Trading Funk

2009-08-06T21:47:00.001-07:00

The past two days my positions have continued to do poorly. SRS seems destined to go to zero with me along for the ride. Yesterday I lost another 4%. Today was actually shaping up to be a success in my opinion only being down slightly even after DSX gapped down after earnings. This seems to be happening now that all my positions are not performing their roles. I would have made back some gains had it not been for DSX. Can't live in "would have, could have" land, have to accept reality that sometimes this happens but I am trying to determine why. I may need to sell all of my positions and step back for a few days and reassess. I hate to do that because all it does is put money in thinkorswim's pockets and not mine but it may be necessary.

I ended up bailing out of my /ZC short because I didn't want more risk to the downside and here it is another 40 points lower and I would have made bank...there I go again with the would have's. To make matters worse I decided to go long at 340 which is now going against me and fouling up my day. It was at a reasonable entry point but I still need to consider why I went short in the first place, because I expected a pull back in equities and they are mostly correlated at the moment.

My only winner as of late has been CHK, doing great the past 3 days, which I sold half my position ahead of earnings and wouldn't you know it goes up the next 3 days at half my size. So I decided to replace that long with the /ZC to help stay balanced but that is clearly not working either. These are the pull backs I wanted and expected and I am still losing money, even with ultra short positions and that is not right.

So why is that? Am I entering and exiting at incorrect times? I definitely feel like my timing is off and maybe I am being more emotional and not really recognizing it? I do still anticipate more of a sell off coming, we likely see some increase in unemployment that gives people a reason to sell stocks. At this point it will likely just be profit taking because there is not good enough evidence for the majority to shift themselves bearish but who knows. I want to lean short biased and slightly am but I feel like as soon as I get more short the market just reverses on me and I lose more money. Possibly a week off could be good, I could set some stops and walk away or just sell everything and sit in cash but that partially seems unnecessary with some of my longer dated options.

I would like to see a pull back in CHK and roll into some options with a higher strike price. I will be curious to see what happens because we had what I would consider to be a distribution day, where we had a very large volume day with decent movement but it finished well off it's highs after touching a resistance level of 25. I would like to get back in around 22 and go up a strike.

I may shuffle some things around before the weekend and sell some options if I feel like I can collect some premium over the weekend. If things end up poorly again tomorrow I may just set stops and shut things down for a while. It actually could be a good experiment to try where I am trading purely mechanically. All I know is I need to do something to get myself out of this funk and account slide so I don't start doing dumb things and forcing trades.

Total Return for 2009: 138%

Treading Water

2009-08-04T20:29:00.001-07:00

I can't seem to make consistent forward progress and I am trying to determine why. I was pleasantly surprised yesterday when I figured the gap up would cause me losses but my balance worked out well and I ended up even on the day. I shorted corn last night from 370 down to 364. I decided to not let it go over night because I skewed myself short at the end of the day since we didn't really finish significantly over 1000 and figured I didn't need more risk to the upside.

Same old story today, gains at the open then turn into losses. This market will not go down and maybe that is my issue. I have been looking for a pullback since 950 and it has not come, which to be honest is completely ridiculous. But that is how the market goes sometimes, remember the old saying. I am still skewed to the downside currently due to the vehicles I am using, but have a decent long exposure as well and will increase it once we get a pullback, if it ever comes...

DSX was a pain today and I don't like the relative weakness. If this is a true recovery it should pick up and it is a synthetic long position so I am less concerned but the Baltic Dry index continued its downward flag and has not been able to get above the 50 day moving average. ADM released earnings and apparently people either didn't like them or just decided to take profits because it sold off fairly heavily on high volume. It finished nearly right at it's break out level of support so I decided to take a long position to help counter my shorts.

My positions were holding up fairly well until the end of the day everything fell apart. This happened with the combination of volatility decay making me lose even more money.

Everything I posted in the last post was essentially proven wrong the past two days. Things basically came in line to support the rally but we still remain in historically high overbought territory that will need to be worked off. We are at a point that I feel like any single piece of fairly bad news could bring us down in a hurry but I really don't see what the catalyst would be. I thought housing might be it but that likely won't be till next month as it was better than expected data today with people buying during the last rush of the housing season. Financials are starting to take over the lead which points to further upside. It could be good to go long financials and short tech since financials have lagged so far and tech is extremely overbought.

I am more and more tempted to make a larger portion of my portfolio dedicated to forex and commodities. They have lower commission and seem less prone to some of the things that happen in equities. I have visions(delusions) of grandeur following in the footsteps of Jesse Livermore trading cotton and wheat futures. One thing he may say is that I would be stupid to be short because "afterall, this is a bull market."

We will see how tomorrow shapes up, hopefully better than today and my relative strength and weakness plays will perform. I took a position in SRS to try and catch a snapback rally but catchign a falling knife is generally not a good idea but if you manage risk properly it can pay off when it works.

Total Return for 2009: 144%

Losing Steam

2009-08-01T03:35:00.000-07:00

Two days in a row the market has closed at essentially the same point unable to make it to new highs. Month end brought on shenanigans normally seen around options expiration. Everything seemed like a back to back bear or bull trap sucking as many people offside as possible before reversing. Daytrading was likely a frustrating affair unless you were contrarian at the extremes each time. Most price action hovered around VWAP. I partially feel like there is an understanding for month end not to make any huge waves and screw up people's performance but again there is no way you can get so many independent people to collude with one another. Of course if 2% do 70% of the trading then I guess it becomes much easier.

I do feel like this should be a temporary top. Technicals support a pullback, as well as bullish percent figures. Let's take a look at some individual charts courtesy of stockcharts.com.

Here we have the NYSE bullish percent chart. Currently it is in "bull confirmed" status. As we can see we are very near historic highs, but also have come from historic lows. The down trend line was broken at the beginning of 2009. Generally if you have a bearish view it is a low risk entry point to enter at the "X" that is even with the previous high column of X's. The reason for this is because if it makes a new high that should signal that the trend will continue.

Let's look at the Nasdaq 100. Tech has obviously been on a tear recently and this shows a divergence between tech and the NYSE. We can see that on this chart there is a new high that was established today for the bullish percent figures. This would generally signal a continuation but we have to be aware of where it is occuring. It is literally at an all time high meaning tech is very overbought. As always things can become even more overbought but this should support at least a short term pullback.

Energy came from even more extreme oversold conditions, it actually reached "0" on the PnF chart. We can see the status is "bull alert" meaning it could move into bull confirmed. This could be a good place to go long because it is not extremely overbought by bullish percent figures so there is more risk to the upside as compared to the NYSE and NDX.

In regards to today my positions basically performed how I expected. I am currently skewed to the downside but do have my longs in DSX and CHK and ACH which were mostly positive. With the help of my /ZC position I ended up squeaking out a gain today. I ended up exiting my position in corn because it reached my short term target. I wanted 350 but got out at 347 since I didn't know if it would reverse early and didn't want to be greedy. I ended up catching 25 points in the trade so I can't complain. I will likely look to get back in on a pull back.

I entered near 320 because it has been long term support for 5 years so it seemed like a very low risk entry point. We did dip below it initially but I held strong because it wasn't at my loss limit and I figured there would likely be a shake out. Now that it has broken the 3 month down trend 330 should be the next support level. If we have a sell off in equities we will likely test that level again, but if things remain bullish it may only get down to 340. I may take a slightly larger position the second time around but I'll see how the market conditions are before doing so and what I think the outlook is. If it happens to break above 350 I will get long again as there is not much resistance until 400. The appealing thing about getting into trading more commodities futures is the fact that the commissions are a lot lower than options but still offer leverage.

Another divergence that is bearish for the market is some of the action in FOREX and futures. The EUR/USD did not continue over the 1.43 level. Here is a screen shot of a 1 month daily chart of 10 year treasury futures, crude oil futures, S&P futures and EUR/USD.

We can see the level of resistance in the Euro has diverged as the S&P has continued higher. Oil has also lagged the S&P making a lower high. One of the bigger tells in my opinion is the action in the 10 year treasury. Notice how it has broken it's wedge to the upside which means higher bond prices and lower yields generally signaling a flight to safety. One could argue individual supply and demand factors for each chart which is obviously true but generally they are correlated in some way.

As of now I am still looking for a pullback to at least 960. Now that we don't have earnings as a catalyst the economic numbers coming out will have to be constantly above expectations to warrant the latest move and a continuation which I think again skews risk to the downside. GDP was -1%, with consumption worse than expected. If GDP is 70% consumer spending then that definitely doesn't help things going forward. However if we do come out with a positive number in Q3 which is possible, I think that changes psychology again to proof of a recovery even if it is weak. This makes people think things are getting better so then they spend and again self fulfilling prophecy! We are surrounded by them!

Total Return for 2009: 149%

Lack of Follow Through

2009-07-31T03:43:00.000-07:00

The market definitely erred on the side of caution yesterday. It held up above VWAP all day long which statistically points to a rally late in the day, however I held the belief that we would not rally simply due to the factors I already described which are month end and risk to the downside. The rally yesterday I feel skewed the risks even more to the downside because I feel like we will need a decent beat for GDP to have this rally continue and get over 1000.

We are again in a scenario like we were at 950 where we are overbought and close to resistance. We are admittedly a little ways away from the all important 1000 level. This is a psychological level which means it is a technical level because if it is paid attention to it becomes a self fulfilling prophecy like I have said before. If GDP comes in light or worse than expected we could see a decent reversal of this rally. Although I don't think that will happen I am decently prepared for it.

Yesterday almost at the exact high of the day on the S&P I decided to get into SDS calls as a hedge going into the GDP number. I ended up buying back my short IYR calls because it ran significantly yesterday close to my strike and was eating up a significant amount of capital in margin. This proved to be a great move as the sell off I expected into the close materialized and my SDS calls are nicely profitable.

Corn recovered and finally broke out of it's downtrend of the past 3 months. This should signal a run to 350. It should encounter resistance there but if it gets above that we could see a fast back to 400. If the S&P does happen to get above 1000, there is not much resistance until 1100 so the party may continue. However, we are currently at extreme readings in the bullish percent on the NYSE and on the nasdaq. The $BPNDX is at new extreme highs where we have historically seen a reversal and the NYSE is close to extremes as well. Interestingly the bullish percent on energy is at fairly low levels, which means they could see some significant movement if things continues to the upside. Lastly, the Baltic Dry index still couldn't get above it's 50 day MA yesterday so the flag continues.

DRYS reported earnings last night and beat estimates by a couple cents. Their outlook was actually decently positive saying they were seeing improvement and signs of a recovery. The stock was up after hours and I am hoping that will help my DSX position and the Baltic Dry to break out of it's flag. If I were extremely lucky DSX will hold up well even if GDP does not beat expectations or we have a sell off. Overall I should be decently positioned going into this number either way. I may look to change my bias depending on how things shape up.

With this sleep schedule I am on I may as well be a money manager haha.:-)

Total Return for 2009: 147%

GDP Holds the Key

2009-07-29T20:31:00.000-07:00

I can't really tell right now if the lack of conviction selling is a positive or if this is simply just propping up the market so we can sell it off hard when GDP comes out regardless of results. I have come to realize over the years that in the absence of real news to push stocks, the illusion of performance can be predictable. This is obviously based on the psychology of traders and money managers since ultimately they move the market and the market trades on psychology. Take this week for example, going into month end the market is moved by those people getting in and out of stocks ahead of the time when their performance is measured. By deducing what we know about people, that they are greedy and fearful, we can determine probabilities for short term movement. This is by no means a hard and fast rule but so far things have acted fairly predictably up until this point.

We had a large run, those people who are somewhat reasonable will want to sell their positions and lock in their monthly gains if they just caught a 10% move in the S&P or more, they can afford to sell stocks down 2% while locking it in. After that selling pressure is relieved, the people who missed out on the rally for the most part want to jump into the stocks that went up so it looks like they were holding them the whole time. This creates a snap back or at least a temporary floor in prices. It is essentially the reverse if we have a large decline.

Keeping the typical money manager in mind and their quest for absolute return you then speculate as to what reactions may be for up coming events. This can help give you an edge(or at least a perceived edge). Overall, most people likely want stocks to go up because it is much easier when they do and everyone looks better for it and makes more money. We are somewhat in a pickle because we have run up quite a bit into this number so you wonder what is priced in for expectations. However, if we were to somehow get a positive GDP number I think we could see the rally continue because this will be a reason to buy stocks and it also coincides with the 31st of July so any added gains would be a bonus, adding pressure to the upside as shorts cover and longs pile in so they don't miss the rally.

The consensus on intrade is that we have a 75% probability of a positive GDP number. I was unaware of that statistic until today but makes me want to be long biased if people smarter than myself think there is a 75% chance of it coming in higher than estimates. Obviously I still have to manage risk properly but I am now skewed long.

Today was fairly boring, although I was fairly pissed off because my entire loss was due to my /ZC position until it reversed late in the day. Small losses, small gains and large gains are fine, it is the large losses we want to avoid which I didn't do last week so overall I consider it positive when I end up flat or higher after I get into new positions.

I am trying a long term trade on a stock and we will see how long I can be patient. I essentially took a synthetic stock position in DSX for March 2010 expiration. This is purely a play on the idea that we will have some what of a recovery going into next year and if not, as long as things essentially stay the same I will collect a nice premium in the mean time. The beauty is that even if it does nothing I will make 10%. I of course still have my exit chosen in case a recovery does not happen. I also decided to get into CHK on the pull back to near support. My concern is these stocks have all run up significantly recently but if the rally keeps going, so will they. Not to mention it held up nicely even as UNG was selling off.

I sold some front month puts on ACH as it pulled back to a pontential support level. I also decided to sell some front month calls on IYR as a hedge to the downside. One of the reasons I hate selling is it just uses up so much capital for margin and you have limited upside but I felt like this hedge was decent because it should be on a relative weakness candidate and even if it does go up the volatility should contract in my favor. In retrospect I could have sold less calls and bought long puts as my hedge but we'll see what happens.

Friday could very well determine the next couple months and 50 points in the S&P. Since I am net long I'd prefer a rally on better than expected numbers but I am willing to be flexible. Expectations on jobless claims seems fairly low so I doubt it is a factor tomorrow but could be a catalyst for selling if it is unexpectedly bad.

Total Return for 2009: 138%

CFA Level 1: PASS

2009-07-29T03:54:00.000-07:00

Got my level 1 CFA results yesterday morning, I assumed the worst in that I thought I did pretty well but likely still fell just short but I passed! Probably one of the greatest feelings and best accomplishments I have had to date. It feels great to be done with that hurdle and move on to Level 2. I was actually surprised at how well I did I got above 70% on 7 out of 10 sections of the test and almost for sure got above 70% overall. I think this may be the first time that the minimum passing score was at least 70% or maybe a 69% after looking at some scores that were a band 10 fail(top 10% of failures). Even with the MPS much higher than 2008(likely closer to 65%) there was a fairly large jump in the passing rate from 35% to 46%. Either way, I passed and know that I know the material(and hopefully potential employers do too now) and get to study for level 2 now! :-)

In terms of the market I have recovered some over the past two days. Things have played out pretty much as expected so I have taken that opportunity to recoup some losses. ISRG had a pull back and I decided to cut it loose after I gained back half my loss. This was a great move at the time as it made a new high again yesterday but we will see what happens going forward. I was noticing on the monday down day that the financials were diverging and staying up when the market was down so I sold my SKF position fairly quickly thinking that if the market strengthened financials could take off. I took the opportunity to lighten my SPY puts as well. On Tuesday I closed more of my put position on the SPY and now have just a normal position size on. Each day it has still been that I have higher gains earlier in the day and the market rebounds into the close so essentially being disciplined and selling into weakness has been the difference of making back money and not.

I am now short the S&P 500 via Sept puts in case we do test 955 as we technically should before resuming the rally. To hedge this I still have my December Corn futures contract which continues to annoy me. It is sitting around this 33o level after breaking its downtrend it will likely consolidate here before moving up.

I am now just waiting and looking to get into some more positions when they are at lower risk entries. Futures are down slightly right now, Asia sold off decently with Shanghai pulling back 5%. S&P futures hit a low of 964 but have since rebounded. This could be seen as a bullish divergence however I partially feel like it is a head fake and we end up selling off. Materials will likely be under pressure all day but they have run a lot in such a short period of time it would be crazy not to expect some pullback.

I find it humorous, and it likely goes unnoticed, but since my interview where I was talking markets and I was asked what stocks I personally liked I said I liked materials and metals(for inflation and real demand eventually) and specifically FCX and ACH. Since that day which was June 13th FCX has moved 25% and ACH has moved 38%. I obviously wish I had been in on those moves, I was waiting a little too long to see if we broke down. I feel partially vindicated, even though that is short term outperformance I expect it to continue for years.

We could see a struggle today as a sell-off may be the logical choice but we have buying for month end window dressing as people get into the names they have missed so far and that helps put a floor under prices and prevents a larger decline. If materials take a hit today due to the Asian pullback it could offer some decent entry points. Oil is also pulling back which should cause natural gas to sell off as well. I am hoping CHK comes down and I can get into it close to 20. I'll be watching coal names as well, ANR at 30 is a good entry point. I will likely choose some longer dated options and possibly some synthetic stock positions. One thing is for sure though is I will definitely be hedging any longs with more S&P puts or individual weak stocks but I need to find some.

On a side note, one pairs trade that I think could work out well in the future is Long AAPL and short RIMM. Both do perform together however when Apple finally has the Iphone on multiple carriers I think RIMM will be much more hard pressed to sell Blackberries, same with PALM. The other trade could be long AAPL and short T as they will no longer get guaranteed revenues from people wanting the Iphone.

Things are looking up again, I just need to manage risk as always and trade the way I know how and I should hopefully resume my forward progress.

Total Return for 2009: 137%

Follow-Up Failure

2009-07-24T22:43:00.000-07:00

I stand corrected; today was my worst day of the year. The past 4 days in a row it has been the same thing, either my largest gains happen early in the day or my lowest losses and then things get continually worse. I figured I had at least weathered the worst of the storm yesterday, nope. Today the market really wasn't up, but guess what was, ISRG. Corn futures essentially reversed back down to their 330 breakout level which of course added to my losses. The added problem with no movement in either direction was the drop in volatility further hurting my option positions.

I am expecting the sell off to come at some point early next week as we go into month end and companies take their profits. It is likely we only have a day pull back as we get the profit taking then people hop back into positions for window dressing. I'll look to lighten or completely exit my positions into weakness. Ultimately I think we test 950-955 again but I am not sure if I have the patience given that everytime this week I have allowed my positions to work they hurt me. Even this morning I had a nice profit and figured I would let the market work but then we rally. If we get a pullback to 960 in the short term I'll exit.

This has been an extremely demoralizing week all around. I have lost all forward progress and reverted back to my worst levels since April. Obviously my return is still good overall but this drawdown is unacceptable and to think I could have avoided it by selling out at the morning on Thursday kills me. With losses comes smaller position sizes going forward so progress will likely be slower back up unless we miraculously got a gap down on Monday of a decent size. The even better thing is of course the fact that after the close the SPY was almost another half percent higher(note sarcasm). I will HOPE that this was hedging of short positions. Rallies don't last forever but they can last longer than I can take the loss so we will see. I assume a decent amount of people are in my position making me even more concerned that it won't happen.

Just a note about the return figures, they have taken a huge hit this week. Overall return is down a lot, my account is not down nearly that much since the total return is based off my initial starting balance. If I get the pullback I want on Monday I may just sit out for a bit and wait for better entries and take a step back for a while. Obviously the important thing is living to trade another day, which I am but it is as much(if not more) a mental battle as it is a capital battle.

Total Return for 2009: 123%

The End of the Bear Market

2009-07-23T21:33:00.000-07:00

Unfortunately I didn't post this in the morning when I emailed it out to some people otherwise I would look like a genius calling it before such a large rally(not that it helped me any, see previous post). ;-) Anyways, this is a graph of the 20 week and 40 week moving averages on the S&P 500. If you go back over the past century, when these cross it signals a change in market cycles. There have only been a few false signals but when the 20 crosses below the 40 it signals the start of a bear market, and when the 20 crosses back above the 40 it signals a new bull market cycle. As we can see we have the 20 crossing back over the 40 finally a few days ago. I assume a lot of others see this as well and is one of the reasons we have rallied so much recently.

Regardless of your own personal viewpoint this is a bullish signal and points to higher stock prices so dips should be bought from here on out. My personal viewpoint is that we are still in a very weak economy that isn't improving much however we have had better than expected earnings even if a lot of it has simply been due to cost controls. Again the market trades on psychology and looks forward so even with the current reality we may see the S&P hit 1,050 or whatever target GS has on it because people are willing to pay up for stocks until we reach that point. This means I may as well go along for the ride managing risk and buying dips as necessary until I am told otherwise by the market that sentiment has changed. I am looking to ride the market down until the re-test of 955 then will get long biased again.

Remember that regardless of what any pundit says or what I think or say the market will show the way and it is showing that it wants to go higher at the moment. I will look to get in after we work off this extreme overbought condition and likely get long mostly commodities and energy and metals.

Total Return for 2009: 145%

Terrible Day

2009-07-23T21:18:00.000-07:00

I got hit with a double whammy today. Didn't get the job I wanted and had my worst losing day of the year all at once. Oh well, I have to keep moving forward. I am fairly frustrated because I had to get out of my short AMZN strangle because I would have received a margin call at some point. So even though I wanted to hold over earnings and thought it would reverse(my top short strike was 100) I had to exit and what happens after earnings? Stock tanks. AMZN was one of the main losses today which now cannot be made up by that drop I likely would have recouped all the previous days losses plus some more with the decrease in IV. Oh well, had to manage risk and at the time who knows it could have kept ripping higher, though likely not to 100 since that is essentially an all time high(also a reason I chose it as my short strike).

ISRG is another pain. The stock apparently had great earnings and gapped up HUGE. At around the 208 level I figured it had probably run it's course and people would start to take profits and I could ride it back down to test the gap at 200. I entered towards the end of the day and apparently people were still short and covering or just really like the stock cause it kept going up finishing at 215. My time line is to have it test it this month but i'd rather start out with a gain instead of a loss. There was another reason for my large loss today.

All my short positions got creamed today and I am sure I wasn't alone as the shorts scrambled to cover and kept the rally going, it was essentially straight up all day long. This was the rally into the extremes I originally wanted to have happen at 950 but obviously did not. I will likely get smacked for it and normally don't do this but I averaged up my SPY puts. I am holding September paper so I have some time and my target is the retest of 955. My only saving grace today was my Q calls and my corn futures position.

Going into tomorrow I am still short and will look to cut other positions into weakness as I see fit, with MSFT and AMZN disappointing and after having such a huge rally I can't imagine we don't have some profit taking into the weekend but obviously I have been wrong before. These are the draw downs I try to avoid but this was the perfect storm and I got pummeled.

Total Return 2009: 145%

Can't Nobody Hold Me Down

2009-07-22T20:33:00.000-07:00

Once again the market gapped down in my favor and then rallied back up to my chagrin and loss of paper profits. I am trying to be patient and let my positions work but this has happened two days in a row. The market is acting bullish and normally I would welcome it but I guess I find it annoying due to my net short position. I also find it annoying because we got some less than good news from some of the major financials today. WFC had great results on the surface however their write downs were fairly large and they predicted hard times in the next couple quarters. MS had nearly triple the loss expected and the stock gapped down but finished even on the day. This happened essentially across the board. There were some positives with US Bank beating estimates and fairly limited write downs which helped the stock rally. This is a time that is separating good banks from bad and it definitely still appears like US Bank is one to have in the portfolio long term.

I was looking like a genius at the open, SKF was up, SPY was down and the Q's were flat to up, everything in my favor. Financials reversed as did the S&P, the Q's continued up so the hedge was fairly useful but didn't make up for the overall change. It was very odd, at the end of the day the SKF finished flat yet my options lost .20, as did the SPY but the options gained .20.

The quiet rockstars were actually my short strangle positions in AAPL and AMZN. Despite gapping up $5 my AAPL position made money from the volatility contraction just as I predicted. Same with AMZN, they don't report until tomorrow after the close but volatility already started to contract putting more money in my pocket. I do have to say that one could likely make a decent monthly income with option selling strategies, but it will never match the risk reward potential of a long option. I will defintely use selling strategies to enhance my gains when appropriate in times like this.

The complete surprise today was my corn futures position. At the end of regular trading I had a loss, then I saw someone tweet about corn and took a look and I suddenly had a nice gain as something caused it to shoot up 3%. I obviously hope this continues and will be curious to see why it moved like that. I was obviously looking for movement to the upside but that was a swift move. Since I am holding a December contract I am debating if I should take a time trade and just hold it until December and see what happens. I could actively trade it and commissions are not too bad but I am curious what my profit will be come December if any.

ADM confirmed it's inverse head and shoulders pattern today so I may look to get long on a re-test of 29 just to make sure it isn't a fake out but the pattern looks very nice. Overall, with the broad market I can't argue that things are acting bullish and the more we test the 955 level it will eventually break so I will be quick to cut my short positions if that happens. We have another slew of earnings on deck for tomorrow so we'll see what happens futures are up decently at the moment. I feel ok about my overall positions but am feeling a bit more exposed since I highly doubt my strangles will help me out as much in the future as they did today. I may need to add a select long position. Overall I just want a pull back to 930 to exit and get long biased again but as I have been taught many times in this game it has nothing to do with what I want.

Total Return for 2009: 163%

Late Day Giveaway

2009-07-22T04:57:00.000-07:00

Yesterday was playing out extremely well for a majority of the day which of course meant it would not continue. I had tweeted that I was wary of a reversal in the afternoon, treasuries were looking fairly toppy and starting to reverse. Generally as bond prices come back down it will confirm a rally in equities. In this case it wasn't much of a help in that regard but we rallied anyways. I still had a decent day gaining back a few percent but I was up much more earlier. I had made a few moves before the rally in anticipation of something and to better balance myself since I was fairly short.

I exited my IYR position because I was already short biased and that position was pushing my limits. My thoughts were that if we got some bad bank news about commercial real estate it would collapse back down but I was holding too much that way and it would hurt worse if it went against me. I also sold my MFE position yesterday to give myself a little more cushion for my other positions.

AAPL reported huged earnings, again. Very nice results and a trend that is likely to continue for quite a while, I would be buying pullbacks for the long term for sure. I sold a strangle into earnings and the day of the release it was up a decent amount but we'll see how it is with the gap higher. I basically gave it a range from 130-175 to finish between, that would have both strikes expire worthless. I sold a strangle on AMZN again giving myself a wide range from 100-70, which is also profitable.

To balance my shorts I went long QQQQ calls as tech has been relative strength and continues to impress. I also went long some December corn futures as another long exposure play. With corn trading near 320 which is basically right at a 5 year support level I figured risk was easy to manage and we could see a move off this level. I would hope a lot of people are hedging their businesses if they have it as an input because to have this be back at a 5 year low when we have 5 more years of population growth and will have inflation at some point seems like a bargain, but time will tell.

Financials reported today with somewhat mixed results. US Bank beat expectations and had fairly limited write downs which is great news for them. :-) Wellsfargo beat expectations but had quite a bit of write downs and said they expected them to increase which I think is finally showing some of the reality that is out there and one of the additional reasons I was net short. MS reported a much greater loss than expected. I guess it is hard when you don't have the inside info like GS does to trade on. In all seriousness though I think the MS results have to be somewhat of a surprise and the financial results in general have to take some of the rosy view off the rally and make you wonder how much of the previous good results were due to the government assistance.

So as of now I am essentially short the SPY and long the Q's as my hedge and so far it appears to be shaping up decently before the open. This could be the roll over from 950 I was looking for but I definitely don't want to keep giving back gains on rallies so I'll watch things closely.

Total Return for 2009: 155%

Net Short

2009-07-20T22:11:00.000-07:00

With nearly an 8% run over the past week and most indicators pointing to overbought conditions I feel that there is more risk to the downside than the upside at this point. The McClellan Oscillator is near extreme overbought levels and fairly far away from it's mean.

I am fairly short, possibly too short but I feel like there are very few times you have the market up against technical resistance at 950 along with an overbought condition. This should further reduce the upside risk potential however I do fear that we may get one last hoorah move that could shake the weak shorts and send them scrambling for cover. I am not necessarily bearish on the market, it just is the lower risk play and that is the smart trade to take.

IYR is a big annoyance as it continues to move up for no apparent reason. I do have more time on those options but it is pushing my patience and loss limit to the max. I noticed that IBM is very far away from any averages or reference point and thought it could be a good mean reversion play in the short term. Long term I like the stock but the point is to trade isn't it? ;-) Could be a good trade down to at least 110. I would have taken it but I was already into my other short positions and didn't want to take more risk on to the bearish side. I of course got short right into the face of a GS upgrade of the S&P index. They raised their outlook to 1,060, which is definitely possible if we break out but hopefully it is a contrarian indicator for the time being. Just like oil if we have a break out it could be a self fulfilling prophecy to 1,060.

I took my profits on USO today as it was close to my target of 35.00. Of course as I expected it traded up to 35 premarket when I can do nothing and then sold back down to 34.60 at the open. Overall, it seems to have been a decent move because oil is currently trading down but we wll see what happens over the next couple days. The dollar was fairly weak today as the Euro broke out of its recent range. Interesting to note was the divergence in the treasury market. 10-year treasury prices moved up with equities which is the opposite of what you would expect. This could be a possible bearish divergence for stocks as people are anticipating a pullback and get into safer assets.

I bought puts on the SPY looking for at least a 2% correction to the 930 level, ideally the 915 level. Financials have run pretty far fairly fast as well so you could see some profit taking over the next couple days weighing down the market. USB reports before the open Wednesday and I am rooting for them for personal reasons. :-)

We'll see how tomorrow shapes up, we could have a run at new highs as shorts get squeezed. AAPL reports after the bell, I actual sold a strangle into earnings, however in hindsight it may have been an essentially worthless move because implied volatility is the lowest I have seen in a while. However on the bright side I chose a fairly broad range so if it finishes within that range I collect the premium on both sides which has about an 80% chance of happening. It may have been smarter to sell a strangle on AMZN since it is cheaper and IV is higher, I still may do it.

IYR was the main reason for the losses today, I get annoyed that the SPY options trade for 15 mins after the close because it can amplify your gains or losses prematurely. In this case it added an additional percent to the losses.

I will also be releasing my latest article tomorrow for The Davian Letter at www.davianletter.com about option selection.

Total Return for 2009: 152%

Good Friday

2009-07-18T08:34:00.000-07:00

The week left off on a very good note both financially and personally. Financially I recouped yesterday's losses plus some more.

Trading wise it was fairly boring as expiration went out pretty quietly with stocks getting pinned and held early to their appropriate strikes that will make the market makers the most money. I followed my plan to buy back my short AA options into weakness which worked out very well. I actually ended up with a small profit and was able to buy them back near the lows of the day. After I closed that position I was pretty much content to just sit and watch things unfold. USO moved up, the IYR moved down, MFE was flat. My PALM and POT positions were far enough away from their strikes that my short options did not move in value. In the end, all of my remaining short options expired worthless which has a double benefit because I will get to collect the remaining premium and don't have to pay commissions to buy them back. By tomorrow the rest of the profit should be reflected in my account so I just added it onto todays gains for my return calculation.

Going into next week I'll be curious to see how the market acts. Both Bank of America and Citigroup reported better than expected results. Citigroup came in with a large profit when a large loss was expected so I wondered what kind of accounting standards they were using...turns out all their gains came from their sale of Smith Barney, not actual business activities. CIT is apparently in talks for financing from GS and JPM, oddly coming the day after the government said they would not help and the bond prices collapsed further. I understand it is a business but it seems kind of shady depending on how things happen. It would have been extremely easy(and highly illegal) for GS and JPM to buy bonds and sell CDS's or just gone long equity knowing full well they were going to help. Theoretically there should be a firewall in place to prevent this type of thing and maybe they just waited so they would be able to get higher rates of return on their financing but it makes you wonder about some of those business practices, no wonder their profits are so large! One of my friends said "you knew you should have gone long CIT!" I had that inkling too, however I said I'd rather deal with companies that don't have the possibility of going bankrupt because there is no reason to take on that excessive risk.

All conspiracy theory and unethical behavior aside we are at a precarious point in the market I feel like. This MAY be the point where the market is starting to look towards a recovery by the end of the year or early next year and so far the cost controls and expense cutting of companies definitely improved profitability and outlooks. As we know upside earnings surprises are the main driver of stock price appreciation as analysts re-value their models and people are willing to pay higher multiples during times of expansion. I read a research report from Goldman on commodities that essentially reflected my own sentiments. They actually had specific trades using futures that they recommended putting on which got me wondering how I would perform if I decided to put them on myself. I will use equities and options to carry out my own view. One stock of note I just looked at yesterday is ADM which has a massive inverse head and shoulders pattern. If I see it then so does everyone else making the self fulfilling prophecy possibly more profitable once it confirms. I would actually like to see some pull back and I will look to get into it.

I still struggle with the divergence of my opinion of the economic fundamentals and what is happening in stocks. The economy may be getting less bad but isn't really improving much, unemployment is still getting worse, financial companies are setting aside more loan loss provisions and if people have no jobs how will they consume and if GDP is 70% consumption...I could go on for a while. This is countered with recent price action and the apparent known "fact" that stocks bottom and head higher much before unemployment rates improve. The S&P 500 also gets cheaper on a valuation basis as earnings outlooks get revised upwards.

I have to assume we pull back at some point here soon because we have moved 7% in a week essentially and the McClellan Oscillator is nearing overbought territory. If we happened to have a gap higher on monday I feel like it would be a good opportunity to short into. If we work off this overbought condition and get above 950 on the S&P it points to more upside. Going off of technicals theoretically a test of around 910 should now be bought so that could help put a floor under stock prices. If FCX pulls back to the 50 level I will be a buyer and I am contemplating a longer term strategy with a synthetic stock position going long a call and short a put because ultimately I feel the direction is up.

Total Return for 2009: 156%

BMC vs. S&P 500: Update

2009-07-16T20:38:00.000-07:00

I decided I would update my graph of my total return vs. the S&P 500 today, so here it is. Since I last posted it I am up an additional 25%, however I am now 20% off my highs for the year. We can see it is also no longer a steady uptrend and there have been a couple sharp pull backs, however some of that is a function of not having all the data to smooth it out. Overall I am glad I am higher but I am frustrated that I seem to be stalled from making significant advancement so I'll need to determine why that is. My time in market has not been nearly as good because I essentially made my big move during the rally from March to May and have now been churning around only making another 20%. Obviously keeping things in perspective 20% is a great return for a year by pretty much all standards so to do it in two more months is fine but makes me long for a more consistent trend.

I do have to say that we tried to pull back a little but couldn't do it today and ultimately headed higher and ended near the highs again. The usual things happened again, none of my positions worked. This seems to be a more common occurrence the week of expiration. MFE acted like it had a 1.00 delta with the amount of volatility it lost in addition to the stock being down. AA continued higher again. I sit now with a small loss which is of course irritating because I had a very nice profit three days ago. I'll look to close it out into some weakness tomorrow. My three other short positions however will expire worthless so I guess that is technically a 75% success rate and the profits will easily make up for the loss on Alcoa.

GOOG and IBM reported after the bell, both beating expectations. IBM killed expectations and raised guidance again supporting the idea that this rally could possibly be warranted. IBM could be a good stock to get into on a pull back. The financials struggled today even after JPM beat expectations as well so that was an interesting divergence, but possibly expected after things have run up over 10% in the past week. I am actually surprised GOOG did not do a bit better because of the fact that I would assume more people are staying at home and increasing computer time, not to mention the higher adoption rate of smart phones which all should add to their revenues.

Materials continued their move up and I continue to flagellate myself for exiting my UYM. Interesting was seeing the movement in UNG. Oil was mediocre but UNG moved up 7% after forming a decent bottom over the past week. This could signal the time to buy natural gas equities and get back into CHK and similar companies. The idea behind this is the fact that if these stocks can move up while UNG is hitting new lows then if UNG actually starts to get a bid they should outperform.

Overall it was a disappointing day today as we were flat I was holding up decently but things fell apart as we trended higher and things were disconnected in my account. I look forward to next week when I will have nearly all my capital freed up after expiration and I can look to get into new positions.

Total Return for 2009: 149%

Can We Continue?

2009-07-15T21:18:00.000-07:00

After a huge 3% rally across the board today we find ourselves finishing right at resistance near the 930 level. The question becomes is this as far as we go or will we keep going? As usual the market will show us what it wants to do and it may show us by the end of the week with JPM results coming as well as GOOG. In addition to these earnings we have an added uncertainty of option expiration on friday. With options expiration it is not unusual to get some decent volatility as the market makers attempt to milk as much as possible out of their positions. One of the interesting things to note today is that with a 3% move the $VIX should have collapsed, however it was actually UP on the day. This is a peculiar divergence and could point to some pull back or could indicate some hedging of new long positions.

Apparently it was pretty foolish to get out of my UYM positions. Obviously at the time it didn't seem foolish but it has since ripped higher without me. I am long term bullish on metals and commodities but it seemed like we were going to face short term head winds(and still might). China GDP tomorrow could also lend a bid to these stocks tomorrow if it comes in better than expected. AA ripped higher to my dismay today finishing above 10 dollars and making my short calls ITM. I still have a profit but it was significantly reduced today as it shot up 6%. I think there is a fair amount of open interest at the 10 strike so hopefully that will help the stock gravitate to that level for expiration and assist my position. If it moves up much more I will have to exit the position.

Overall luckily my longs outpaced my shorts and I had a gain although it was less than the index which is always annoying. AA is the main reason I didn't have a better day and my UYM hedge is no longer on. USO had a great move as the buying in equities cause some short covering and possibly new long positions in oil. This is exactly the move I was looking for, I will look to take profits near the 35 level. MFE broke out today above the 42.50 level I had previously talked about on good volume. Hopefully this move can continue as the strength in tech continues. My concern is that tech is becoming increasingly overbought so it may be hard to sustain the rally. I think the logical and reasonable short term target on MFE is now 45.00. It is entirely possible it will eventually make it to $50 however I'll look to get back in on a pullback.

We may face some resistanace at the 930 level but if the earnings and guidance keep coming in better than expected the party will continue. IYR has finished right at 32.50 which is my line in the sand. If it continues to strengthen I will have to cut that position and look to re-enter at a later time. For now I am sitting on my hands and waiting to see how the week finishes out. Once we get into next week after expiration I will see how things are looking.

Total Return for 2009: 153%

Things Are Looking Up

2009-07-14T20:23:00.000-07:00

We seem to be two for two on significant companies beating earnings by a wide margin as the main part of earnings season kicks off. With GS posting 4.93 and record revenue, and INTC posting .17 cents and raising Q3 guidance, that is the type of thing that will send this market higher. The question now becomes is this the exception or the norm?

We finished right at the 905 level which in my opinion is still a possible head fake, however after Intel's results we saw S&P futures jump 10 points to 911 which should translate to a 915 cash market open if we hold overnight. That type of action definitely points to higher prices in the short term. If the financials can keep surprising to the upside this could very well take us back to 950 and beyond.

The more traditional bank results will likely hold the key. When I say more traditional I mean companies that are true bank holding companies like US Bank, Wellsfargo, not hedge funds in disguise like Goldman and Morgan. If the other major financial players can earn money without the help of proprietary algorithm program trading that essentially guarantees money to companies like GS, then I think this rally could continue.

My view on the fundamentals will not change, I still think unemployment will go higher and likely top out close to the 11% level (at least the way they measure it). This will definitely weigh on consumer spending and further depress housing prices. Once we get into a less favorable housing season I think it could get decently worse and commercial real estate may start to deteriorate further. The funny thing is that GS reported a fairly high write down related to commercial real estate yet the IYR was up today.

So if I am still not that optimistic on the economy how can I think we go up from here? Well for one the technicals are in favor of a move higher. The break back above 900 will be seen as bullish by traders and we get that self fulfilling prophecy. The other thing is that if companies report better than expected earnings, even if those expectations are low, the market psychology will likely once again want to buy stocks. There is somewhat a disconnect between some businesses and the actual real economy. The job losses we are seeing are coming from the very companies who are reporting. While it is definitely unfortunate for the workers who are laid off, this does reduce expenses making the companies operate in a more efficient(aka less expensive) manner.

So in the short term the pain in the real economy could help support corporate earnings surprises which are statistically responsible for a majority of stock price appreciation. Even though I do think poor economic fundamentals will eventually catch up to most companies, I am not opposed to the possibility of a near term rally. Sadly, only profits seem to matter and if that is what the market is looking for then we could be setting up for a decent move higher. I am not willing to take too many positions just yet though. I will likely do nothing for the rest of this week unless I need to cut losses, and then if things still seem good going into next week I may take on some new risk in good looking stocks.

Oil continues to frustrate but it looks like the make or break point could come with tomorrow inventories. In the recent past, it seems to be that if we sell off ahead of inventories we get a rally on their release and vice versa. So the recent price action could be setting up for a rally especially on bullish numbers but of course you never know. USO is obviously a fairly inferior trading vehicle as it hasn't even properly tracked oil this year which is why I do not plan to hold it for very long.

One of the definite lessons from this market is that you don't necessarily have to agree with what is happening but as long as you manage risk properly you may as well go along for the ride. Market psychology is emotion based which allows for the exploitation of inefficiencies for possibly better than average risk adjusted returns.

We'll see what unfolds in the days to come. I would actually be curious to go back and see if the majority of first week of earnings releases beat expectations, then do we generally rally regardless of the remaining releases?

Total Return for 2009: 151%

Placing Bets Ahead of GS

2009-07-13T21:36:00.000-07:00

So apparently, after I had posted my entry this morning, I found out that Meredith Whitney had made call to buy Goldman Sachs ahead of earnings and put a fairly lofty price target on the stock. This is likely partially to blame for the move in futures pre-market as she made the call on CNBC's "squawk box". I obviously missed this as I generally try to avoid watching CNBC anymore unless it is on mute. ;-)

We have now re-tested the 900 level on the S&P a little quicker than I had previously thought. I thought we could have some run up today then a test tomorrow if GS had a good report. Now we seemed to be poised to break back to the upside if things seem positive. I assume the market is smart enough to realize this but GS and the rest of the financial landscape are not the same. Hence my call of possibly choosing relative strength and weakness candidates in the financial sector for a pairs trade.

I am definitely not a conspiracy theorist, however both times I have exited my short option positions that were ITM, they have reversed and subsequently would have become OTM and likely will finish worthless. This is fine with me as I have to properly manage risk and cutting the loss was the right thing to do but either way it is curious and frustrating.

I made a couple moves today, however it may have been a little premature. I exited my calls on UYM because they had a decent move and I did not want to be overly long over the remainder of the week through earnings season so I took my small profit. Also I am already long USO calls which should have at least some positive correlation to materials, although oddly did not today. Oil has held up twice now at the $60 dollar level which was my original reason for going long to try and capture a move back to $65. Ideally we will get some bullish inventory numbers this week as gas prices came back down and created a draw. My remaining calls are on MFE which has recently hit a new all-time high. If it can get above 42.50 it should run for a bit. Hitting an all-time high in this market is the perfect example of a relative strength candidate.

To offset my call positions I got into some IYR puts as I had been waiting on a rally to get a better entry point. My entry was likely still a bit premature, I would have preferred 32.50 but did not want to be completely exposed to the downside and I still feel like it could see some decent movement down.

It will be very interesting to see how the market acts tomorrow after Goldman's earnings. It has yet to be seen if GS is simply the exception to the rule or a precursor to the next move up that is assisted by the financials. I am contemplating getting into some more defensive positions for the short term such as WMT or a health care play to see how earnings play out. From a technical standpoint if we have a decent close above 900 we are headed higher. However I really don't see how the fundamentals support that. I guess the point is not necessarily to agree with what is happening but just to accept what the market psychology is at the moment, no matter how irrational it is, it can still be profitable as long as risk is managed.

Total Return for 2009: 150%

Moment of Truth

2009-07-13T05:22:00.000-07:00

This week we see a kick off of earnings season in a more significant way. Larger financial firms will be reporting such as Goldman Sachs which will most likely beat estimates as they always do with their unmatched ability to dominate trading activity. Financials will likely set the tone for the remainder of the summer in my opinion. If outlooks remain bleak and there is talk of a lot more write downs as has been speculated, then we could be headed back towards the 800 level in short order and possibly lower.

It will be interesting to see how realistic they are on their future projections since back in 2008 even the companies themselves didn't see it coming so it is humorous to think they will do any better this time. For better or worse we have a tendency to be optimistic so that is likely what we will hear. It could be a good time to start pairs trades on financials, possibly going long those who raise guidance(if they will) and short those that don't. The usual players seem to be considered "safe" GS, MS, JPM on top of their trading revenues they seemed to participate in the largest amount of underwriting and normal M&A activity(the small amount that occurred).

These fundamentals will likely determine the technicals because we have so far held the neckline of the head and shoulders pattern on the S&P but it has so far tested it a couple times. The more the line is the tested the more buying gets exhausted and we likely breakdown(which likely coincides with poor earnings releases).

Last week finished up decently for me. This week will be significant as my short options will expire this week. This month has definitely been one where I have been short options more than I have been long(or been both at the same time). I have cut positions that were questionable or ITM going into this week so I should have limited exposure there, it will just depend on how volatile the market wants to be this week. All of my short strikes are decently far away and would require some significant short term moves to become ITM but you never know what will happen, especially with earnings. The downside of having the short positions is that it requires a lot more capital to be held in reserve so that is an opportunity cost taking away other long positions. I am trying to make that steady grind back to my old high returns as the market figures out it's direction. If things go extremely well all my short positions will expire worthless and hopefully longs gain some ground as well or at least stay flat.

Futures just recently took off so we'll see what happens today. Hopefully good things, especially with my interview :-)

Total Return for 2009: 147%

Attempting To Recover

2009-07-07T21:10:00.000-07:00

My lack of posting recently has been due to a lack of decent internet access and action until today. I had bought some MSFT puts last week and closed them before the weekend and took my 50% profit in case we had a bounce and to avoid time decay. The odd thing that happened was that I literally did not get filled until the closing bell which made me say "well I bet we go down on monday because they wanted them back." So far monday and tuesday we have continued to break down.

Many stocks are confirming Head and Shoulder or Double Top patterns. Materials are definitely struggling and facing some headwinds however many of their individual stocks are right at their neckline support and have yet to break. Until they break down obviously the long attempt is the way to go if you want to take the risk. I am taking the risk thinking we could get a little bounce before we really break down. Because a majority of the material sector has not broken yet, I decided to get some exposure via the UYM. This position will likely be made or broken by the results Alcoa reports and the reaction the stock has. I have hedged the UYM position with a short OTM call position on AA. Since AA is a significant portion of the UYM if we get positive news out of AA I should see a decent pop in the etf and benefit from the volatility decay because right now IV is 109% and the next month is 75%. If we assume a collapse down to at least 75% that is nearly a .35 cushion against an unexpected upside surprise.

We shall see what happens, if we break down I should benefit from my short option positions. If we have a bounce back rally I should benefit from my long option positions so I would consider myself decently hedged.

Total Return for 2009: 140%

Fisted By PALM

2009-06-30T05:41:00.000-07:00

Even with the contraction of IV on the short palm position(20% contraction day after earnings) my closest strike of 15 ended up significantly in the money. This was an extremely frustrating day, the stock pulled back which I waited for and expected and I entered my order at 14.90, which was the exact low for the day. I was apparently 20 seconds too late as I never got filled on my limit and the stock basically rebounded and went up all day long. In hindsight, the best thing to do would have been to sell a strangle choosing a decent range I think the stock will stay between so I can have more of a hedge in case of an extreme move.

I was asked why I would have taken any position at all ahead of such a significant announcement. The reason is because I have the IV contraction on my side helping limit a loss and I essentially have a 75% of making money. There are 5 scenarios that can essentially can take place after earnings. Palm goes up a little, goes down a little, does nothing, goes down a lot or goes up a lot. On 4/5 of those scenarios I should lose very little and likely make money. Unfortunately for me this time it did what hurt the most; go up a lot. Selling a strangle would have been better because I have IV contraction working in my favor on both positions and money lost in one direction would be more offset by the money gained from the opposing short position. The interesting thing to note is that I used to go long options ahead of earnings, which now seems fairly stupid to me because you essentially only have that 1/5 chance of making money because as a long you have so much working against you.

Palm sold back off a bit yesterday so I took the opportunity to close my ITM position at a loss, which was better than two days ago but not as good as if I had been filled when I wanted to originally. Oh well, I have learned something new and must move on and be glad I am out of my loss. I am holding my further OTM short call positions since they still have a decent chance of finishing for a profit and it will help make up the loss, I'll essentially break even. If it continues to strengthen I'll look to close those as well. This was another scenario where I took too large of a loss, which is exactly what I don't want to do and can't do if I want to keep going. I have been on kind of a bad streak lately so I am trying to be patient but it is also making me a little timid in taking more risk. I am over 30% off my highs which I don't like, I'd rather keep my drawdown to a minimum.

Total Return for 2009: 134%

This Will Hurt

2009-06-25T16:45:00.000-07:00

An overall confusing day, jobless numbers are worse than expected yet we rally? PALM issues no guidance besides a break even cash flow mid 2010, no sales figures and the stock rallies 15% afterhours?

The overall markte move was likely due to year end positioning. The palm dilemma is more concerning, it was a better than expected quarter but the company is by no means profitable or even doing that well. Apparently the market is discounting a profit for 2011... Either way one of my OTM positions will now be ITM and I will be suffering a nice loss depending on how much volatility contracts tomorrow. This will also signal an all time high for the year and I think for the past two years. I will attempt to exit at an opportune time tomorrow on a pull back. If for some reason it pulls back significantly below 15 I may let the day unfold and see where it goes but for right now a pull back to 15 would be a welcome event. Up 300% and still people are piling in, that is fairly strong and hard to argue with. My other OTM positions will be held unless I feel they are in danger as well. Too bad I didn't go with my original idea of selling a strangle, oh well. Always next time.

Total Return for 2009: 147%

What's Next?

2009-06-24T05:11:00.000-07:00

So after my last post, that Friday I took a position for a snap back rally as a day trade buying calls on the SPY. I was looking for a move up to about 92.30. I sat in the position as it flucuated between a gain and loss for a while. It moved up looking to break out but got rejected at the 91.70 level all the way back down to 91.50 fairly hard. This once again moved me from a profit to a loss and it looked like it was breaking down, so I exited not wanting to take more losses after yesterday's loss. Of course, literally 2 mins later it reverses higher and breaks out just like I was expecting and runs the entire move I wanted in probably 10 mins. I would have made up my entire days loss yesterday with that trade. After that happened I decided to not look at my computer anymore because I would have broken it. That is the most frustrating thing, It was good to not take a loss but my emotion from losing yesterday made me cut the loss too fast and not allow it time to work out.

Moving on to this week, I avoided the large down day on Monday being flat. Many stocks broke their trends on monday and we finished below 900 on the S&P. Only a couple finished at their support levels but I was not brave enough to go long as it seems like this could be a turning point in the markets with some further downside. I don't think we retest the lows by any means, but I can't say for sure obviously. I think We likely get to 875 and possibly 850, hopefully stabilize and then move higher from there. Many stocks have already taken 30% haircuts from their highs so they have to look decently attractive to the Bulls.

I only have one position and it is short OTM calls on PALM. Not that I dislike palm, I just feel that there is an edge to selling calls ahead of earnings vs. owning them or doing nothing. The expected volatility was 119% 2 days ago, now it is 110%. I am currently break even on the position. The stock has run from 3 dollars to 15 dollars at it's high. Obviously people can stay irrational longer than I can hold a loss but that seems excessive and I feel favors a sell the news type event. Analysts are still expecting a loss of .74 next year which is good in terms of growth being less negative but still not a "healthy" company. We will see what happens after they report on the 25th, I chose my positions so that if they become in the money it will signal a new high which would point to more upside and an exit for me. Again, after such a huge run another 20-40% move is possible but seems less likely especially if sentiment is turning.

Durable goods just came in better than expected by quite a bit which has sent futures up to the 900 level. I think this is a time where shorting could be difficult because of the constant expectation of recovery at some point and we may not get consistent bearish data enough to really knock the market down. I would prefer a pull back to 850 then get long for an intermediate term basis. The only thing that may help bring things back to reasonable levels is if earnings are not as good as expected so people won't pay as high of mulitples as before. We shall see though.

Total Return for 2009: 148%

Opposite Day

2009-06-18T05:48:00.000-07:00

Apparently my account thought it should fall apart yesterday and go in the opposite directions I want. I feel like yesterday was the options expiration shenanigans we normally see because as we were breaking below 900 the VIX was down, people were likely bailing out of their calls(like me) and the market makers were buying them back and making a killing.

Absolutely nothing worked yesterday, when we were flat, all my calls were down and all my puts were up. I basically got frustrated and threw in the towel because obviously my positions were not working and at the time it looked like we could continue downward and I didn't want to lose more money. Of course I got out, after the first hour as I tried to let the BS subside but even having a bit of patience I was the one capitulating only to see things reverse as I was hoping they might to begin with.

In the end my exit earlier in the day didn't really matter as I calculated it saved me a whole 20 dollars instead of selling at the close. The reason I feel like it is partial manipulation is you saw most stocks break below support and then finish back at them. If I had hard stops on all my positions I essentially would have been taken out of all my longs and stayed in my puts only to see them lose money too. By exiting everything I basically locked in my put gains and call losses so I had no more exposure. I have seen my account slide 20% over the past couple weeks so something is not right. I will step back and wait until next week to initiate some new positions that present themselves and look to take a day trade or two with front month contracts if things look good.

I discovered again that I seem to be off at trading FOREX which is odd cause it should be like any other trading vehicle, it is essentially just that I have less confidence doing it. I traded the AUD/USD, hopped in only to see it break down to new lows, so when it makes a new low(and at that point was breaking support on a long term chart) I cut my loss being disciplined only again to see it completely reverse higher by days end. There will be more opportunities but I seem to be a little too impatient with currency right now.

The problem with stopping out of my positions that technically held support so far is that I still like them long term so the dilemma comes as to when should I get back in? The good news is that this now allows me to roll my contracts to some longer dated paper. I just need patience, that will solve my problems.

Total Return for 2009: 148%

Slow Bleed

2009-06-16T18:52:00.001-07:00

A snapback rally did not materialize today as we had some weak data come out that kept the sell off going. The S&P probed down to 906 before finishing at 912. WFR continues to confuse and piss me off. It trades strong yesterday then falls apart today and was definitely the relative weakness position today but finished at support so I haven't cut it loose yet. I did get rid of ANR and put in an order to sell my DSX calls as well but did not get filled. My puts on RTH and XLY worked out nicely today and helped offset the WFR move. Overall I ended down slightly over 1%, essentially in line with the S&P. I would rather be making money even on down days but I'll take some small losses over large ones.

Short term we are starting to get oversold with the McClellan Oscillator at -80, the most extreme reading was -120 back in March. The ideal situation in my opinion would be a gap down tomorrow at the open that I can buy into because we will gap down and hit that oversold level likely triggering some buy programs. I also think that there will be some buying to help volatility collapse back down going into expiration and helping all the puts that were likely sold recently lose value. I am sure we won't gap down because that is what I would like and likely others would like so we'll prob gap up.

The 900 level will likely serve as a support level for the S&P as it is a round number and most will be watching it. I will possibly look to take a day trade or two tomorrow depending on how the day feels. If we rally significantly I will then look to take off some more of my long positions assuming we finish under 930. If we gap down I will look to take off some put positions in hopes of the snap back. Overall I feel like I've been inefficient lately and my positions have been out of sync and that can be seen in the losses as of late and obviously from my long bias. Of course I can't be too hard on myself since we just broke down but I was a little loose with my stops which is never a good idea.

There haven't been a massive amount of breakdowns occuring on an individual chart basis but the financials and some others are definitely showing some weakness here. This could be the larger pull back everyone wants but it will all depend on if we continue to get bearish data. All I know is I don't want to see my account deteriorate much further.

Total Return for 2009: 153%

Down We Go

2009-06-15T20:14:00.001-07:00

Friday was one of those very annoying days where initially almost all my positions were working. My puts were making money and my calls were making money or had smaller losses. I walk away thinking I don't need to really monitor things and hope to come back to more profits but instead I come back and all my profits are gone and I have decent losses in their place. This can happen when you have diversified and therefore somewhat uncorrelated positions. Generally you want your relative strength and weakness candidates to work in your favor but it can't always be the case.

Today I would consider more positive, in that I managed to have a small loss on a fairly large down day. Usually the leverage afforded by options can cut both ways so up moves and down moves are multiples of the index. Today I actually had only slightly more than a 1% loss with the S&P down over 2%. This is how I'd like things to work all the time while being long biased. My WFR position actually made money which I found very surprising given that oil was pulling back and materials stocks were getting hammered. Hopefully if we see a bounce tomorrow WFR will be an outperformer. That divergence allowed my put positions to help equal out my other long positions. ANR is currently stuck in a range from 27-30 and CHK is stuck between 22-25. Natural Gas actually had a huge day which I am hoping will be bullish for CHK which has been my thesis all along. As soon as we start to get an uptick in NG I am hoping the linked equities will catch a significant bid.

On a broader perspective, we finally broke that channel of prices from 930-950 on the S&P and we got that large down move I was talking about. This means that if we rally from here it will be smart to lighten long positions or get into lower risk short positions. Until we break back above 930, the direction seems to be downwards. I am really wondering how low we can actually go as I have said before that there are a lot of people now waiting to get in that didn't initally so it may be hard to break below 900.

For the first time this year I have moved money back into my FOREX account as it looks like there could be some significant outperformance in those areas compared to equities in the short term and possibly longer term. The problem I face is not getting over leveraged one way because a weak dollar/recovering economy will lend a bid to commodities, materials and currencies so being long the Euro is essentially the same as being long oil and commodities. Ultimately though I honestly think the biggest outperformance will be in these areas and in the longer term the risk of losing money is very slim. Once we actually do see the economy recover, real demand will come back, along with inflation so you have two factors working in your favor rather than against you.

At that point we must be mindful of where the turn comes of what is bullish and what is bearish. Just like before oil at 100 was bullish until it started to get to 120 and then it started to be bad for stocks. The same could become true with equities and interest rates and further down the line equities and oil again. At this point I know the apparent short term direction but nothing is really hitting me like "this is easy money". I feel like the dry shippers are really lagging the Baltic Index but obviously if people don't agree with me then there isn't an inefficieny to exploit. Those too will likely depend on actual recovery in the global economy for a sustained move but once it gets going it could be a great trend to ride.

Total Return for 2009: 154%

Rejected Again

2009-06-11T22:37:00.000-07:00

The S&P once again tested the 950 level and could not break much above it let alone finish above it. This is the third time this has happened. I have heard the opinion that 950 on the S&P has no real significance in terms of technicals and here is my take on it:

What creates support and resistance levels to begin with? Psychology of the market place creating excess supply or excess demand at levels it deems appropriate. We should know by now that people like round numbers and gravitate towards them, it happens on an intraday one minute time frame as well as broad market. Is there any reason 950 should serve as resistance? Not necessarily, but if people pay attention to it, then it matters. It is the same reason fibonacci lines sometimes work. There is no reason in my mind for fibonacci's to work other than once people pay attention to them they become a self fulfilling prophecy (general trading rules may play a role as well but that's a story for a different day). So, 950 could be a target for longs to sell, a target for shorts to sell, a level where fundamentals are now suddenly not inline with prices and P/E's are too expensive. I don't really care the reason, all I notice is that the price action around that level is being paid attention to. The other interesting thing is that we have been in a range from 930 to 950 for almost a week now, which generally means a break is coming in one direction or the other and once it does it could be a big move in a single day and determine our direction for the next couple weeks. If we break to the upside I'll scale out of the puts and get a little longer, if we break down I'll get bearish biased for the time being.

There was an odd divergence today with Solar stocks lagging as oil was hitting new highs which has me concerned about my WFR position but also the energy/commodities plays in general. My guess is we hit a temporary top in oil at 75 dollars which could be a head wind for materials and energy. Natural gas finally had a lower than expected build and I would like to see that continue and that could be the next good trend to ride. WFR was the only real laggard today which kept my account down. I did notice Visa appearing to break its uptrend finally after a false break out which could be a good put opportunity. Since the market remains unconvinced on a direction so do I and I will continue to sit on my hands until it makes up its mind.

With a week left until expiration I may look to sell some premium going into the weekend depending on what happens on Friday. My only short option position on NVAX is annoying because it is traded by largely uneducated speculators in my opinion which means as unrealistic as I thought hitting 5 dollars was when it was 1.80, it just may happen.

Total Return for 2009: 158%

Progress Resumes

2009-06-10T22:09:00.000-07:00

The past couple days have been positive in terms of account appreciation and getting back on track position wise. On tuesday, oil and consequently the USO was acting fairly strong and I had already seen my puts on the USO turn from a decent profit to a small loss on the gap overnight so I decided to cut those loose and keep it at a small loss. That proved to be a smart play because not only did it finish higher yesterday but also moved much higher today as well.

Again I saw an annoying side effect of owning options, volatility decay. The RTH and XLY were down most of yesterday yet my puts lost money thanks to the drop in the implied volatility. Tuesday I had mostly mixed winners and losers except for one big winner which made up for the rest, which is exactly what I want to see if I can't get a better directional move. The same thing happened today with a slightly smaller winner making up for mostly a lack of direction.

I am positioned long commodities essentially and short retail, however I am starting to get slightly concerned with the overall market. I have been thinking we would go down for a while now but have acted bullish lately, especially oil. However, the SPX has gapped up or gone above 950 now twice and been rejected quickly both times. If we test it a third time and don't break it I think it points to downside. The catalyst I think will be the elevated 10 year rates becoming a head wind to equities along with higher oil and gas prices temporarily slowing their consumption(although we have yet to see that). I will stay bullished bias until things change, we have some important data coming out tomorrow with retail sales and jobless claims. My RTH put position could put a hurt on me if things come out better than expected but hopefully jobless claims will be tame as well and my other positions will make up for it as has been the case the past couple days. Slowly but surely I am trying to climb back to old levels to make new highs I just have to be patient and smart.

Total Return for 2009: 156%

Failed Breakout

2009-06-08T17:55:00.000-07:00

So since I have last posted I finally took my Level 1 CFA exam and have that out of the way, and while I feel better than last time I still don't feel great about it which is annoying and now it's a waiting game.

In hindsight the best thing to do after I essentially sold all of my positions was to stay in cash for the last week before the test. When we had the opportunity to sell off and didn't I took this as a bullish sign and decided to get back into some long positions in anticipation of the next leg upward above 950 towards 975 and likely the 1000 level. I basically got in a day too early, ALL of the positions I got into came down to much lower risk support levels and entry points. Obviously I can't predict this but patience would have served me well. Balance would have served me better as well because it was the first time I have been completely long with no offsetting hedges which made the moves much more painful. This is exactly the position I don't want to get into where I have large down moves and smaller up moves, you want the opposite to be true. Obviously I can recover from this, it hurts mentally more than monetarily but again I seem to have a hard time getting away from a certain level in my account. It could just be coincidence but since we have essentially done nothing for the past month and I haven't seen my account do much either that likely forced me to be impatient and take risk at a bad time. I have since offset my calls with puts and am still long biased but today they weren't much help.

I still feel that the market is overall wanting to move higher because we have the psychology of the market in that direction. Those who trade trends are thinking that they should buy dips until it breaks and with a seeming majority eventually expecting a recovery people don't want to be late to the party especially if they are already 30% late. In reality there are some signs of stabilization and the jobless claims number was much better than expected even though unemployment is already close to the projected high for the whole year and we are only half way through. The odd and frustrating disconnect in one position in particular are the dry bulk shippers. The baltic dry index is at new highs, significantly higher than a month ago, yet the dry shippers are not at new highs. I was hoping to exploit this inefficiency for a gain but it has gone in the opposite direction so far.

The ending result was I had a breakout in my account to new high returns of 169% but have since fallen back down to 150%. That is too much volatility for my liking. I used to like seeing large moves but realistically making steady upward progress is much better and suffering large drawdowns is not the way to do that. The market still seems to be unsure on which way it wants to go. Now that I can once again devote my full attention to the market I will look to regain my performance using the same strategies that have worked all year. Position sizing, balance and patience.

Total Return for 2009: 150%

Can I Breakout?

2009-05-29T00:22:00.000-07:00

I have not been posting as much lately as I have said because of my preparations for the upcoming CFA level 1 exam. I am currently sitting back at my previous highs in terms of returns. I am still slightly bullish biased waiting for the market to make the next move. I feel like that move could come tomorrow on the GDP report which I think will be better than expected and spark the next move higher. I am tempted to buy a futures contract now and let it go but that could be fairly risky so I'll wait till tomorrow and see how things shape up before the report. If we break to the upside tomorrow I'll exit my puts and look to get long some commodity plays. I will still keep things fairly light until after June 6th.

Total Return for 2009: 161%

Eventful Week

2009-05-22T22:52:00.000-07:00

Well the week has been eventful for me, more so outside of the markets which is the reason for the lack of blogging the past few days. Weds I saw more rebound getting back a couple percent lost on monday. Thursday I gave that back then a little more and Friday I ended up back where I started on Tuesday.

Outside of the markets I got my wisdom teeth out which is highly annoying to deal with and I would rank it up there with having a sprained ankle. I am sure it will be glorious to eat whatever I want again just like it is glorious to be able to walk around and run with no limp after a sprain but for now it is simply a pain in the ass(or mouth rather).

Turning my attention back to the markets I am thinking that it may be time to get back into FOREX because it seems to be where all the action is these days. With the Euro hitting 1.40 recently that is a huge move. One I was looking to happen but obviously didn't know when it would so going long the euro may have tested my patience and stopped me out. Now that it has moved however I could go long on a pull back but may look at other currencies instead.

The odd thing with the market is the fact that we broke down on the $VIX yet the market is trading fairly poorly like it could also break down on the next wave of bad news. I guess this is good for option buyers either way but makes it hard to look for clues of the next move. The drop in the VIX along with the rise in 10 year treasuries seems to be fairly bullish for stocks. Agriculture stocks are on fire and IPI(which I got stopped out of) would have likely been a better trade than FCX was had I stock with it. It would be nice to get a larger pull back to get into those names to better manage risk. Besides the first 2 days of the week the moves in my account have been fairly boring which is fine for the next 2 weeks until I am done with my CFA test. I would like to get some type of conviction soon, buyers show up at 880 and sell at 900 for the moment.

I see more and more commercial real estate for sale signs around me yet the IYR continues to hold up much better than I would expect. I am thinking we could digest some bad news over the course of June then look to rally in July/August especially if earnings stay decent and last quarter "improvements" aren't a blip up in a downtrend. Bad news we likely need to discount still is GM Bankruptcy, continuing job losses and rising unemployment over projections, commercial real estate deterioration. I still feel that materials and Ag will be the out performers as we can already see inflation expectations taking its toll on the 10 year rates. With more bad news discounted and a larger pull back in stocks I would be fairly comfortable going long again for the longer term. I have seen an increase in job postings locally but that will only offset some of the other job losses occuring but is a positive step.

Total Return for 2009: 157%

Flat Day Rebound

2009-05-19T22:53:00.000-07:00

Today helped bring my account back up nicely but not completely. Commodity and materials related stocks were flying high today which is where most of my positions are to the long side. My puts had smaller losses and my puts on the IYR had a gain. Partially due to frustration and partially due to the fact that I am taking the CFA Level 1 exam in a couple weeks I decided to cut back on my positions so I didn't feel inclined to check it as often.

I actually for the time being exited the two long positions at very good prices. ANR and 5 of my 8 contracts on DSX I exited near the highs and they pulled back significantly into the close. Obviously as the market pulled back I wished I had all my SPY puts still on but I sold a majority of those as well and only kept 3 so I am still long biased. I will stay long biased until we break back below 900 which may happen soon. Today had a worse than expected housing starts like I had wanted but it was much worse and I was surprised to see the materials and stocks in general up after news like that. If we hold 900 tomorrow I think that will be bullish for stocks and set us up for another leg higher as long as jobless claims stay in check. I doubt my projected worse than expected jobless claims numbers will hit until later in June as more people hit the job market unable to find jobs. If that doesn't happen we could see this rally gain some momentum.

I am willing to play the market either way obviously I just wish it would pick a direction that is consistent like before but I doubt that will happen. I feel like since the market psychology is that overall thing will get better people are optimistic making a bearish bias a little bit harder than being long, but right now the longs lack the catalyst to make it worth it.

Total Return for 2009: 157%

Rally=Undesirable Losses

2009-05-19T00:25:00.000-07:00

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%

Which Way?

2009-05-18T05:10:00.000-07:00

So Friday showed me a small gain. All my short positions expired worthless minus the one June position I have in NVAX which will almost certainly expire worthless being a 200% move away from the strike but I am almost tempted to just close it and not care about the remaining 50 bucks. The good thing about having things expire is that you get the rest of the premium if there is any and you don't have to pay a commission on the closing side of the trade.

I was actually pretty excited that futures were down last night doing exactly like I wanted. I had wanted a gap down to 875 and then I would sell my puts and either buy futures or just hold my long options. However, Lowe's came out with really nice earnings and that made futures rebound and now turn positive by 1% so we are going to have a gap up instead which I think I am less positioned for. I am overall long but so far the moves in my long positions pre market will not out pace the move in the SPY and IYR so my losses should be greater than profit. Since this is fairly positive data and we may get more with Home Depot later on, this could push us back above 900 but we will see when we get there.

Overall Return for 2009: 161%

Direction Needed

2009-05-15T05:17:00.000-07:00

Yesterday WMT is basically inline with expectations, reaffirms guidance but falls. Jobless claims are worse than expected, both things I didn't want, yet we rallied anyways. Seems like the market wanted to test 900 as well. I got back into puts on the SPY slightly early since we had that weaker data come out but I was able to get into IYR puts at near the high yesterday.

Now we need to either break 900 again or 875. We have yet to test 875 but I suspect once we do it will hold at least the first time. People on tv seem to think we will be in the range of 875 to 900 for a bit which could be and could give the opportunity to trade that channel. Ultimately I'd like to have a break down and retest 850 and possibly 800. After retail sales dropped I started to think about the upcoming scenario even for the summer and it didn't seem promising. We have new graduates coming out so potentially even more jobless pushing unemployment higher quicker than forecast. This continues to cut consumer spending and makes a more quick recovery nearly impossible. This could in fact lead to the credit card defaults and eventually bad commercial real estate loans causing issues as Meredith Whitney and others have claimed(as much as I don't like her).

I had actually been surprised by the more positive data as of recent even though I was long it was good but now seems more like an uptick in a downward trend. Do I think we re-test the lows or go lower? Very doubtful in my opinion but we could see a decent retracement now farther than I thought before. I am still long biased since we technically have not broken 875 yet but if that happens I'll look to get bearish.

All of my short option positions are currently sitting OTM, AAPL shook me out which is annoying because that would have been another one that worked out. This is a subjective analysis but I want to say out of 10 times I have had short options it only hasn't worked once, i've had to buy them back for a loss. The win percentage is great but the risk/reward will still never match a good directional play but can definitely be used to lower cost basis or generate a more steady profit stream. We could see some volatility today as stocks get pinned to certain strikes for expiration. Monday will be the day to start paying attention again.

Total Return for 2009: 159%

Premature Put Exit?

2009-05-13T20:25:00.000-07:00

So at about 885 on the S&P I decided to sell 7 of my 10 puts expecting a bit more of a snapback short covering into the close. I wanted to shift my bias because this was a fairly significant sell off with the break of 900 and the reason we sold off somewhat changes the picture like I was thinking. In the short term i figured we went from overbought to oversold very fast so we could see some relief rally. The ideal scenario for me would be for Walmart to report better than expected earnings and guidance and we have a better than expected jobless claims and we have somewhat of a relief rally and then I would look to buy puts again at 900.

The problem is that we may continue down to 875 wihtout that happening and I am left with not much insurance left to the downside. I have watched my call positions go from large profits to break even, which is very annoying but at least my puts outpaced them overall. I saw a couple of low risk opportunities so I went long but it could be premature if things start to get worse.

JBLU continues to annoy with another 6% down day, and what do you know? The most open interest is at the 5 strike which is somewhat helpful to me but I'd rather be up at 6 with no worries of it breaking down with the market. I will watch it closely tomorrow along with the broad market and act as necessary. I feel like the next leg will be to the downside and create the best profit opportunities but I'd like to get a rally first to get better prices.

Total Return for 2009: 154%

Bullish or BS?

2009-05-12T21:53:00.000-07:00

So today we had what I would consider to be some market shenanigans as a result of options expiration week. Basically the scenario I just talked about happened. We started up, filled the gap then started to break down below 900 and as this was happening the VIX was lower on the day. At a time when you would assume panic is setting in and we are off more than 1% breaking critical support the VIX is down? I would consider it a bear trap, sucking in more shorts and shaking out weak longs before reversing to be flat on the day. JBLU was down nearly 10% on the day for what I think is no good reason. Oil was up but JBLU is specifically known for good hedging techniques and has been profitable. This ate up over half of my cushion in a day and the timing is obviously suspect.

I was positive or negative on the day depending on when I looked but ended up down on the day. I would need to be very active to try and squeeze out extra profits in this type of environment. Had I thought 900 was the ultimate short term low I would have exited my puts. As of right now it appears that people bought that dip again and we could move higher. I need to have my exit in mind for my puts becuase it has been very aggrevating to watch calls lose value, puts gain, then vice versa without any action. The market could have different ideas than I do so I need to be ready for that even as irrational I think more upside is, the saying is that "the market can stay irrational far longer than you can stay solvent."

If the market indeed wants to go higher I'll look to get some more long exposure but a lot of the easy money has already been made. I really want a pull back to 850 and I will buy with a lot more confidence but it could be a while before we get there and I have to look for opportunities in the mean time.

Total Return for 2009: 151%

Pullback Profits

2009-05-12T05:00:00.000-07:00

Since we finished right at 930 resistance Friday I held my puts, which ended up being smart as the market pulled back nicely yesterday and let me profit as my puts and short call positions outpaced my long calls. I was actually hoping for more short term downside and liked that we were trading lower overnight but it is hard to keep this market down, China news is sending futures a bit higher today, financials aren't participating at the moment which is good for my positions and could help keep a lid on any rally attempt today if it continues. I partially feel like the move friday was a fake out and the old me likely would have been shaken out of position which seems to happen around expiration week. We seem to get moves that test your resolve, prices will move just beyond support or resistance making you get out or in before they reverse course and you get screwed. I am hoping to avoid that this week. As of right now all my short option positions will expire worthless and I'd like to keep it easy and clear cut.

I still have yet to determine a good way to profit from expiration week. Although I assume the best way is to sell premium because market makers want options to expire worthless and overall they can't keep the market pinned but in the short run it seems to be possible to manipulate it. I am no conspiracy theorist, I am just trying to exploit realities for gain if possible. I may look into the which options have the most open interest on stocks and see where they finish friday and if there is a correlation. Options expiration is almost like a mini earnings event in that we see volatility generally contract(again benefiting sellers).

Oil is higher today which I hope helps my CHK position, however it is near 60 a barrel which is likely going to produce some resistance in the short term for energy stocks. I doubt the overall market will make any dramatic moves in either direction until after options expiration. I could be wrong but that is how I see things going and hope that they do but am willing to react if necessary.

Total Return for 2009: 153%

Blink, You Lose

2009-05-08T20:26:00.000-07:00

I am at the point of annoyance with this rally now. Obviously part of the reason is because I have not participated as much as I want as of late, but the other reason is because I feel like there is optimism to the point of stupidity now propping up stocks. We pulled back from 930 as one may "expect" to happen and I had nice paper profits because of it, however I literally had to make those moves in the morning and sell in the afternoon because by the end of today they were right back where they were yesterday. It's ridiculous, a 20% range in the XLF in 2 days. My nearly perfect entry points were undone today. I only lost about a third of my gains from yesterday which is fine in general but had I just exited again at the close yesterday I would have given back nothing and gained a lot more.

Of course I am frustrated being on the wrong side of constant optimism, if I were totally long I would love if I had bought at the bottom yesterday. I know the market operates on psychology of humans which are at times irrational which in my opinion is partially why it can be exploited for gain. However, I feel like people are going over board. We have had signs of recovery, not even positive growth again at all and stocks most notably some financials are near old highs.

The S&P did finish below 930, barely but wasn't as weak as I had hoped, in fact it ifinished on its highs but did not break out. I am only sitting on a small loss now on my puts but it is so frustrating to see a large gain turn into a loss. I feel like we will rally the beginning of next week so I get sucked out of my positions, and people get pulled into calls, then pull back so those calls become worthless.

Alright enough bitching, in terms of my positions CHK was the big winner today but was more than canceled out by my put positions...but limited my losses. Going into next week if we rally I will lighten up my longs because they are getting closer to my targets. That reversal day failed to follow through if we finish above 930 I feel like 950 is the next logical level and it could happen in a day if it does. Overall I am making steady progress higher even if it isn't as fast as before I still am taking low risk entries, there were a couple I looked at today but didn't take ahead of the weekend. If financials continue higher into next week I'll have to buy back my short calls as no bearish position seems safe in this market environment.

Total Return for 2009: 148%

Prepared for Pullback

2009-05-07T20:17:00.000-07:00

So after I got done saying not to trade in the first hour I did it again today, however it worked out perfectly this time. We gapped up to 930 on the S&P which was where I planned to take a short and apparently so did others. I Sold calls on the XLF then bought puts on the SPY. This ended up being a good play as stocks and financials staged a major reversal today ahead of the stress test results. I now have a good cushion on my short call position for expiration next week I can collect some theta over the weekend.

Natural gas ripped higher today on apparently bullish inventory numbers right back to its bearish trend line. If it gets above this level we could see it really accelerate to the upside which should benefit my CHK position even more than it did today.

The frustrating thing was that my DECK and IYR positions would all have recovered their losses and AAPL calls would have been woth much less giving me more money. Oh well, I had the plan and ability to execute these new positions and they are working so far. Gaps can work in your favor or go against you but either way can pay off big if they work. After hours when the official stress tests results were released we saw the futures trade back up and financials rip higher again. The concern is that we essentially came down and tested 900, although not exactly but close and that could end up being the opportunity people were looking for to buy back in. So the tough decision comes of when to decide to exit my puts. Obviously I am sitting on a nice profit so it is easier to manage but I don't want to give it all back if we are going to keep rallying. I still feel there is more downside but maybe the market doesn't and those on the sidelines will get in and push stocks higher. I will feel better after options expiration where I will then be perfectly balanced with my 10 long calls and 10 long puts.

For my bearish thesis to remain in tact I would like to see us finish below 930 and ideally 920 tomorrow. Options expiration week is always interesting as there is posturing ahead of time that can cause some interesting volatility. Once we have a larger pullback I still feel materials and energy will be where the best risk adjusted gains will come from as long as the economic outlook remains solid.

Total Return for 2009: 152%

Follow the Rules

2009-05-06T22:09:00.000-07:00

So today we gapped up and both my put positions were in losing positions. DECK ran up to nearly 63 dollars, and my line was 60 and it was pushing past my loss limit. I didn't completely panic out of it, I let it come back as I saw the market pulling back then exited at what I thought was a better price. DECK reversed completely and ended up down on the day. I also exited IYR as it was breaking to new highs and I assumed it would continue. I bought back my AAPL calls as the market started to recover too. I did all of this in the first half an hour. I was basically "right" on 1/3, DECK would have still been at a loss but not at my limit and still protect me to the downside, AAPL went down as much as two dollars and ended up down slightly but the calls decayed more in my favor which would have recouped more premium.

Overall I prob lost 1% on making those moves, IYR ended up finishing higher than where I sold making the move right for the time being but it was still below resistance and my loss limit so I could have held. I was too eager to cut those positions because I saw the market start to rebound and I thought it could be the huge up day I was looking for but for the most part my positions did what they should. I need to remember trading rule #6: Do NOT trade in the first hour unless absolutely necessary. The hard thing is acting early on pull backs has worked this whole time generally going long. My new position in CHK is starting to work out nicely and I think should continue. One thing I have noticed and plan to analyze is holding long term vs. short term trading. FCX, which I originally had July options on at 26, is now at 52 and I exited at 42, thats significant money left on the table. Of course I did get out before it traded in a range for a while so time in market should be considered but it is still something to think about.

The stress test "leaks" sent financials ripping higher today. I really just want a large up day so I can get some low risk put positions. The 930 target is in sight and that will be the place I initiate some short positions. We will be overbought in most of the major sectors and the McClellan oscillator is near extreme overbought conditions as well. Financials seem like a good place to short except that they keep going up. There are some predictions of a 50% retracement of the rally, I highly doubt that, although it is possible, I'd look for a pull back to 875 still. I will still try to pick relative strength and weakness candidates but likely position a bit more bearish in the short term if we hit 930. My hope is that the retail sales numbers are good tomorrow and the jobless claims are close to ADP and we could see that rally continue and then I will look to take some bearish positions. Overall on the day I only had a small profit.

Overall Return for 2009: 143%

Will Stress Tests Spoil Rally?

2009-05-05T21:49:00.000-07:00

Today was pretty much a flat day in the market. I had a fairly decent day with a majority of my positions working the way they should. This was a nice change of pace. The new risk I took has paid off so far with my calls outpacing my puts. I had a dilemma today because DECK broke back above 60 which is where I planned to exit however I felt there was still more downside risk and didn't want to only have one true put position since I added a new call position today. So I decided to hold due to the fact that it is still not at my loss limit and the extra protection is worth it to me.

This could be a good move as a report is coming out about BAC needing 34 billion more in capital which is way more than anyone ever guessed. Who knows what they will say about it when they are officially announced but as of now the futures are down by over 1%. This could cause the sell off I'd like to have happen before being comfortable getting long again. My new call position could be in danger now however a lot of the selling likely occured today after earnings were announced so I am hoping that has alleviated a lot of the pressure.

JBLU had a huge move up today giving me a 20% cushion going into expiration. If it holds up decently well tomorrow I think i'll be fine. AAPL is still my only concern right now because new news could come out ahead of June and send the stock over my strike price but if we have a pull back tomorrow and get back below 130 I should be ok.

Overall I have 2 long call positions and 2 long put positions so I am decently balanced there. I hope in a pull back my puts outpace my longs and at least limit my losses if not help me profit in the pullback. If we have a good pullback going into the stress test announcements it could create a pop if things aren't as bad as feared. I want to test 875 and hold it before getting long in any size.

Total Return for 2009: 143%

Short At Your Own Risk

2009-05-04T20:19:00.000-07:00

This rally seems to be unstoppable. The more frustrating thing is the fact that the largest moves have happened in the materials stocks I wanted to get back into. ANR could have been another FCX or more if I would have pulled the trigger. The tough thing now is a lot of longs are very far away from reference points, so you either have to be very patient and wait for a large retracement or take a long position off a smaller retracement and hope it doesn't go lower where you get stopped out then it goes up without you.

AAPL ripped higher today and took away most of the gains I had on my short call position. I was afraid this may happen but its still below the strike so I may as well wait and see what happens this week and cut it loose. The incredible thing is that it has moved over six dollars to even get back to where it was before earnings. Those market makers have it made. AMZN is still fine and will likely expire worthless. JBLU moved up nicely giving me more cushion for those to also expire worthless.

I still run into dilemmas of when to get into trades. Do I wait for the end of the day or get in intraday? I guess it depends on your viewpoint. I try to use 1 min charts to get a good entry. The averages were at 900 which is where I thought we would hold and it did hold for a long time until the close. I bought puts on IYR and DECK which both were working until they ripped higher into the close. In this instance had I waited till the end of the day I would have gotten them at much better entry points. I bought VMW calls as well, which also moved up into the close so that is an instance where it worked in my favor. It's annoying because I ended up flat on the day due to those new positions but we do have much more risk to the downside now I just got in a little early. I will have to get back out if my puts keep going against me which sucks, it's almost like always trying to buy in a bear market and getting stopped out thinking that if you go short you're goint to get whipped by a huge reversal. Oh well, I'll keep following the rules and taking risk, the good thing is I waited for good entries, apparently not the best, but good and you have to take risk for it to give a reward.

Housing was unexpectedly strong and China announced better manufacturing numbers so things do seem to be pointing to a recovery. The critical thing will be to see the S&P hold 875, which will now be the entry point I look for to get into my stocks unless they show entries ahead of time. If we hit 930 before we hit 875 I'll look to take more shorts before getting long again.

Total Return for 2009: 136%

Buyers Emerge Again

2009-05-01T20:50:00.000-07:00

What do you know, at around the 860 level buyers showed up again to buy the dip and finish above 875. This is bullish on the surface even if we only finished slightly above resistance. Financials did move back into bull confirmed which is supportive of more upside in stocks, things could just move into an even more overbought condition.

This move is very aggravating because all the positions I wanted to get in have moved by on average 20%. That is not to say I haven't profited from my short options, however there is no comparison to the risk reward that is provided by long directional option plays. I will have to remain patient and look for pullbacks again or look at better lower risk plays.

JBLU managed to finish above the five dollar level so I did not cut it loose but it has been acting very weak. If everything works out the way I hope I could sit and do nothing for 2 weeks and make another 10% if the options expire worthless. One thing I will be looking to do on the next pull back is look to pay for my long positions with some short puts and see how that works out. my only concern is the cost of transactions and having to unwind more positions if they go against me but if I can get paid some premium while profiting that is even better. The other problem is that it will require more margin so that may cause me to not do it if I want to take on a decent amount of positions.

I'll take my slow and steady gains but I'd rather have steady and explosive gains like before, but I don't want to be greedy. If I stay patient and calculated I can have good gains with low risk as I have before.

Total Return for 2009: 136%

Proceed With Caution

2009-04-30T23:01:00.000-07:00

Initially I was fairly upset not participating in the past two days of gains. While it is still true pretty much all the stocks I wanted to get back into would be profitable, the action in the broader market is giving me pause. Two times now we have broken above resistance and sold off back below. It is somewhat a confusing time because the Russell already broke and closed above resistance which would lead one to believe the S&P will follow suit. On the other hand, many of the sectors are significantly overbought at fairly historic highs in the bullish percent figures. What this generally means is there is significantly more risk to the downside and much less opportunity to the long side.

This doesn't mean I run out and try and short everything in sight but I will be looking for some good put candidates and may need to buy back my JBLU puts as my original thesis could be broken.

I doubt the old saying of "sell in May and go away" really applies, it is just the fact that stocks have run so far so fast it is only natural to have a pull back but it could be significant if we don't keep getting decent catalysts showing some economic recovery. I am again annoyed by myself in that I have not taken risk day trading as the past 2 days would have been profitable had I traded my plans. It is obviously worthless to say since I didn't do it but at some point I'd like to be comfortable taking the risk again with confidence.

My account gyrated between profits and losses as we traded in a fairly large range but ended up essentially flat. My only real position of concern is JBLU right now with the swine flu weighing on it and if the market rolls over it will not be helped at all. I would be fine if I thought this was a simple dip that will be bought but that has yet to be seen, if people don't buy at 865 or so it could signal an end to the uptrend in the short run and possibly longer. Overall I think people still want to buy the dip, but they may want a much larger dip this time to be enticed to buy.

Total Return for 2009: 133%

New Highs

2009-04-29T15:07:00.000-07:00

Even after a dismal GDP number of -6.1% the market rallied as there was evidence the consumer is actually much better than expected. Intraday we hit new highs and the Russell 2000 broke above it's 480 resistance. The S&P still finished right at resistance however this price action can't be ignored. I will look to buy back in on a dip although I am worried it may not come very soon. I considered buying futures at the open and just sitting on them but decided not to take action ahead of Bernanke speaking (aka I wussed out).

Overall the materials are looking to be heating up again on the idea we may actually pull out of this recession by the end of the year. Tech could continue to do well as well, I'd like some china exposure as well. Financials are actually looking fairly strong, MS could be a good play but it is lagging behind GS which is slightly concerning.

Overall I feel like I should be well positioned with my short option positions and I could just sit on those but I likely would be missing out on a lot of good movement and profits. We'll see how things unfold tomorrow.

Total Return for 2009: 133%

Mass Hysteria Persists

2009-04-28T15:37:00.000-07:00

While I don't believe the swine flu scare is the main reason for a lack of direction as of late it definitely has hindered some of my current positions. JBLU rallied at the open then gave it nearly all back by the close with the continued lack of travel concerns. NVAX was back up another 25% today as people looked to make a quick dollar on a stock that wouldn't be able to help this situation for at least 12 weeks even if it could do anything. AAPL and AMZN fell slightly helping my positions. Overall I was down half a percent, no big deal but of course I'd rather be up, or have bought back my JBLU puts at the open.

Tomorrow I think is make or break day for the rally. I have to admit I was surprised to have a profit when I checked late in the day as I assumed the scare of Citigroup and Bank of America would have kept the sell off going. Buyers continue to step in on dips. If we had a severe sell off today I would have been inclined to take some risk to the long side going into the GDP announcement. I looked at a lot of stocks I want to buy on the assumption of a more sustained recovery but held off because it would be fairly irresponsible to take on more risk ahead of this announcement when I don't know what the outcome will be.

There are some bleak predictions on GDP, one as low at -8.00%, concensus is around -5.0%. A much better than expected consumer confidence number helped stocks and could help the market absorb a slightly worse than expected GDP number, I feel like as long as it improves over last quarter it should be viewed as good but who knows. I'll see how things react after it comes out tomorrow morning then make a decision. If we react positively and get above 870 I think it could point to a lot more upside.

Total Return for 2009: 130%

Profiting from Pandemic Panic

2009-04-27T15:12:00.000-07:00

I don't want to sound insensitive and I can't predict the future but as of right now things don't add up. All financial journalism was focusing on the supposed "swine flu" pandemic possibility after 100 people in Mexico died and we have some reported cases in the US and abroad. Let's think about this logically for a minute. During the normal flu season, there are 36,000 deaths, does this cause a panic? No. This strain of Influenza A, which has caused deaths in Mexico where they likely have much less preventative vaccines and had direct contact with pigs have had 149 deaths. All the cases in the US have been mild and people have made full recoveries. Is this cause for panic? The media loves it, and again it may turn into something more severe but I highly doubt it and for people's health I hope it doesn't.

Because I thought this was completely overblown I thought about ways to profit from the exaggeration. Imagine it as a bubble but very short term. There were small biotech companies doubling in value because of this so I thought it would be a profitable idea to fade their rallies. I decided to sell calls on one company and the company would currently have to double again to even hit the strike price I sold. I had to sell June paper as that was the only option but if the stock collapses back down as I suspect I'll buy them back for cheap and close the trade.

Airlines got killed today, and normally I would not go out and be long an airline however one airline in particular seemed like a much safer play. Jet Blue is near relative highs and has very defined support and resistance. Unfortunately I got in too early and could have gotten quite a bit more premium but the window of opportunity was only about 10 mins. I sold puts near support. I sold puts because I figured it would snap back but if it didn't I don't mind owning the company as it is one of the few airlines doing well and has some sound fundamentals.

Both of these plays are working out so far. The concern I have is more of the fact that we could be setting up for more downside. The BKX is close to breaking a support level which would signal further downside. US Steel reported after the bell and missed badly showing that materials demand is still soft at least for steel in the US which could weigh on materials. This could give me my opportunities to get in but if there will be further downside I must be cautious. With the fed meeting coming up I'll likely wait to do anything unless I see some opportunities where I think things are getting over done to the upside or downside. There are some great looking entry points but it is hard to buy dips with the idea of more downside risk. I still think there is the possibility of bullish surprise to GDP but that has yet to be seen and we have to get through the fed meeting first. We did work off some of our overbought levels today a bit more and if we happen to have a large down day it would be a good opportunity to take lower risk long positions. For now I'll be patient and see what the market does. Futures are pointing lower right now.

Total Return for 2009: 130%

Sidelines Suck

2009-04-25T17:04:00.000-07:00

The market continued higher Friday which makes me wonder how high it can ultimately go. It also makes me irritated I am not long anymore . Optimism continues to win out and we have gotten some better than expected indicators to keep that optimism alive. Up until now I really have not doubted the rally so it begs the question of why start to doubt it now, especially since there hasn't been much reason for negativity as of late. Jobless claims continue to rise although not as quickly, housing was much better than expected as well as durable goods being not as bad. Those could have been reasons to sell it off but it keeps being somewhat of a surprise or a reason to not sell. There are people on TV who say "this is a bear market rally we aren't interested." While I am not delusional and realize it is a bear market rally there is no reason to not ride it while it lasts.

So far I have captured a majority of the move but the dilemma is to decide when to get out. The market is at a critical point finishing just at the 870 resistance level but not able to break above it. The odd thing I have noticed which could be a bearish divergence is the fact that while the market is back at new highs, the stocks I was in that were previously leading are not at previous highs themselves. PCU is still below resistance, ACH also off its highs. This could be sector rotation but generally materials demand is a good indicator of economic recovery. The other possibility is that these stocks are making a lower high and could possibly start reversals over the short term. Then again, shippers are looking strong and coal could be turning around also both things I'd like to be involved with when they happen. From a technical standpoint if we break above 875 it's likely we go to 900 like I had said before. Like I also said I am just hesitant to commit longer term capital at these overbought levels but it sucks not participating in a trend.

AMZN was up 4 dollars on friday after earnings, again going higher when people said there is no way it should. Even with that move up I did make money on the calls I sold. This is a perfect lesson on why options can be risky and why speculating about earnings has to be done with care. Those with in the money options likely made out nicely from the day before but the people who bought the options from me lost money even on a nice move higher because so many things are going against you. From my couple years experience it is generally better to hold options up until earnings then sell if they are out of the money still, or do like I did and sell a couple strikes out of the money if you feel there is some safety but again manage risk. AAPL was down on the large up day which was good as well for my position.

Going into next week I'll see what the market does. It is hard to know what is built into stocks and what isn't. GDP will be announced and I actually have a feeling it will be not as bad as feared again which is bullish but if it is worse that will likely be the catalyst for pause. The 10 year treasury is at a critical level of 3.0%, if it breaks that it should point to higher stock prices as well and more favorable to commodities and foreign currencies. Bernanke made his large announcement about the fed buying treasuries last time we were near this level and something could be said again to try and keep rates capped for the time being but ultimately the market will win out.

My short call positions netted a small 1% gain, which is less than I am used to but again it isn't a loss.

Total Return for 2009: 125%

BMC vs. S&P 500

2009-04-23T13:41:00.000-07:00

I figured I would make a graph from when I started tracking my performance and compare it to the S&P 500 over the same time period. As a full disclosure the S&P graph was hand calculated using 931 as the closing high at the beginning of the year and rounding to the nearest whole percent.

The graph looks fairly impressive but I will only be impressed if I can keep the upward trend in tact and have fairly low volatility and draw downs because this is also over a period of time of the market jumping about 30% off it's lows. Even with that being said I have four times the gains so it's not too shabby.

In regards to today, the volatility continues. We rallied into the close in the opposite fashion of yesterday, finishing pretty much right at 850 again. We started to break down and I sold my last small position in DSX as to not give up the rest of the gains but it recovered as the market did. So I am in cash besides my short call positions in AAPL, despite the stock being up almost 4 dollars I made money on my short calls, thanks to an over 10% collapse in volatility the one time I welcome it. AMZN reported after hours and is moving up but again I suspect the volatility decay will overall work in my favor. DSX was an example of frustration when the stock is down 30 cents but the option is down 40 cents when the delta is only supposed to be .75 but acts like 1.25 because of decay.

It seems like the extended pull back may not happen or at least not for now. We had generally positive earnings and reactions after hours today from AMZN, MSFT, AXP. That will go up against the supposed "stress tests" of the government releasing details tomorrow. If that is a negative surprise it could cause the sell off but with a slew of better than expected earnings we could push higher. I am reluctant to put long term money to work so I may take the opportunity to do some day trading. Many of the positions I cut yesterday continued lower today which is another reason to follow rules and sell on breaks of support. CHK failed to finish over 20, ACH is looking decent but if the market is going to roll over everything will get pulled down with it. ANR was strong again which was annoying because I'd like to get in but will have to keep waiting.

I had a small loss today which is always annoying but in the context of my broader performance I have managed the draw down fairly well so far.

Total Return for 2009: 124%

Whiplash Wednesday

2009-04-23T06:32:00.000-07:00

Wednesday was fairly frustrating as I got out of pretty much all my positions. IPI gapped down 10% on a downgrade from GS which at the time was not really public knowledge so I had no idea why it was happening, the general rule of thumb is if you don't know then sell, which I did. The stock then rebounded but finished right where I sold it originally so overall it wasn't a huge deal. PCU broke down below support and was already pushing past my 2% loss limit so I cut that loose, it rebounded but broke down again at the end of the day, again making my sell alright. I sold my puts as we started to rally which was genuis when we hit highs but dumb when we came back to the lows. CHK also broke down below my line in the sand during the day so I sold as natural gas does continues to trade down.

As of this writing CHK is higher, I will wait for it to close above 20 again to get back in. I decided to sell some calls ahead of both AAPL and AMZN earnings. Seems like a stupid plan to sell calls on two of the strongest stocks of the year right? Maybe, but I went with a conservative option, the probability of the stocks gapping to my strike prices is very unlikely. I sold 135 calls on AAPL and 90 calls on AMZN. In Apple's history of the past 2 years the most I have seen it gap is 14 dollars and that was in a bull market without a run up before hand. Apple is up 40% this year already going into earnings so I assumed any reaction would be muted and the volatility decay would be in my favor. So far it is working out, we'll see what happens with AMZN. I only have 3 positions, my remaining position was my only recent remaining profitable one in DSX.

I am thinking I'll sit on my hands for a while as I have been off a bit lately and given back some money and I feel like this volatility could be a sign of a pullback. I am really wanting a significant pullback to occur to get back into the market but I don't know if it will happen, like a move down to 800. I'd like to get back into energy and materials at lower prices. ANR is looking good but has moved about 15% in the past 2 days so it's hard to buy it up so high.

We'll see how the day finishes out, I'd like it to finish lower, or at least below 850, maybe have a large down day after the stress test info, the next day gap down to 800 then reverse higher would be ideal and likely what others are watching for as well.

Total Return for 2009: 124%

Which Way Do We Go?

2009-04-22T01:25:00.000-07:00

We started off the day down a decent amount, sold off a bit more then stabilized and rallied. By the end of the day we were back at guess where...850. Obviously, typical technical analysis says this should serve as resistance now that we are coming from the underside. The day was slightly confusing because it did show that buyers are still active, and many of the names I wanted to buy into would have been great buys right at the open, however we didn't have enough conviction to break back above. Bank stocks started off with significant losses and ended up fairly positive on the day, again a bullish sign but less convincing as most of the news is already out to propel stocks higher.

We have MS on tap tomorrow and better than expected earnings could prop the market a bit depending on guidance. It has held up very well so far, if there is some bad news though it could give up its trendline in a hurry. I pulled my hedge off near the lows of the day as we stabilized then put it back on towards the end but slightly early because I am sitting with a decent loss right now, but the futures are down nearly 1% so it could still be a smart move.

Another catalyst in some direction could be FCX, it reports tomorrow and could determine the fate of my PCU position as to whether or not I sell or hold. Copper prices tested 2.00 today and rebounded, which is positive but the stocks have had a good run and without real demand it could be hard to keep it up. Shippers did well today and again I missed the opportunity to buy at support before they shot up, luckily I still have my reduced position size on but would have liked to have a full position.

Tech will be in focus for AAPL and AMZN and I get the feeling they won't do much to the upside and likely pull back on announcement considering the run they have had so far but you never know. I have considered selling some strangles but with so much time to expiration I don't know if that is a smart choice. A more extended pull back in tech and most of the financial earnings digested could be a reason for a deeper pull back in the S&P to near the 800 level. This is an annoying time when the market lacks direction and we wait for the next catalyst to move us higer or lower.

I was having a decent day till the end when my hedge ate up most of my profits but I still eeked out a gain. Getting out then back into my hedge did save money though.

Total Return for 2009: 127%

Buy This Dip?

2009-04-20T21:13:00.000-07:00

The market pulled back fairly decently today, the S&P lost about 4%. This was the fast move I was thinking may happen and the reason I kept my hedge on. The decision to sell some positions on Friday was a good one, the materials and energy sector pulled back across the board by quite a bit which is where a majority of my positions are. The dilemma is that I have longer dated options so I could hold them through this down draft as I don't feel like this is a huge cause for concern just some decent profit taking. My hedge cut my losses in half compared not having it on at all which is key. Having smaller draw downs and larger increases is what it is all about. I am close to cutting my PCU position as it is right at my loss limit but still holding a support level. I'll give it a chance to hold but if it doesn't I will cut the loss.

It was hard to not go out and buy everything in sight today as most things had very nice pull backs to support however like I said before we could get down to 800 if we break 850 which we have so I am waiting to see what the market does, if we get some buying I will likely buy as well but I may sit on my hands until earnings season is done and we get more clear info on the state of the economy.

Total Return for 2009: 126%

Topping Out?

2009-04-18T23:47:00.000-07:00

So I am still disappointed by my week end performance, I could have added quite a few more profits but instead have only managed small gains due to my hedge being in place. Options expiration actually had more movement than I expected. I decided to take some positions off before the weekend as they had moved a decent amount in a short time and I will look to get back in on a pull back with different options to lock in profits. Same story, different day but it continues to work so why stop?

I feel like this rally has just about run its course over the short term. Earnings are definitely coming in better than expected and we MAY be turning the corner however once earnings season is done with the market will again look to actual signs the economy is recovering and if it doesn't happen as expected this could lead to a decent pull back. 875 used to serve as good support and now should serve as resistance. If we take out that level then a run to 900 is likely. I am going to look for some more put plays to get into so I am more balanced going forward. I think we could pull back to 850 then resume higher. A break of 850 would signal a break of the recent uptrend and horizontal support and likely cause some more selling down to the 800 level.

Until the 850 level is breached the uptrend is in tact and it makes sense to be long biased. My feeling though is that a move down could be fast given the significant run we have seen and may not offer much time to recognize it. If we continue to have good earnings AND good economic indicators there really is no telling how high the rally could go. Again, the trend works until it doesn't and I have to assume it will continue to work until something changes and I will change my bias to the short side as needed. As long as the market trends I believe I can continue to profit fairly well as long as I am willing to be flexible. I still have yet to see that large rally and exhaustion I would like to see before going short. Maybe it will come next week or maybe it never comes I'll have to manage risk properly either way.

Total Return for 2009: 132%

Hedge Hinders Profits

2009-04-16T21:18:00.000-07:00

So I put the hedge on yesterday of puts on the S&P at the close. We had a good report from JPM as well as a jobless claims decline for the first time in a while. Stocks however did not explode higher on the open. We basically traded around up and down for a while until the after noon. I basically checked in on my positions, saw that not much was happening and stepped away for a while. I came back to the market breaking out and I had some decent gains but my hedge was losing money and really capping my gains. At that point I didn't think the rally would go much higher so it didn't make much sense to take it off and since it was still right at about my 2% loss limit and I had no other puts I decided to leave it on. Either way a gain is a gain, however I would have had 4x the gains without the hedge in place. A smart thing to do could have been to look and see what would have constituted a break out, and set a sell order at that point to close the position and let the rally go.

At this stage in the overall rally I am more inclined to keep a hedge on because we almost reached 875 in the cash market which was my target. Some of my positions continued to trade not as strong as I'd like but were mostly profitable for the day. We are reaching even higher into oversold territory which means we should have a decent pullback in the near future.

GOOG reported better than expected earnings but did comment on the tough times and the stock traded higher initially then reversed. I wish this would have happened tomorrow because it is a good day to day trade options since it will be expiration and GOOG just had earnings. The tough thing is the day may be very low on movement due to expiration and pinning. If C has decent results that could move the market higher as well as GE. My opinion is that a majority of this rally is done short term so I am less inclined to take risks to the upside. I will look for more specific put plays to balance out my bullish positions. What I would really like is an extreme up day tomorrow then balance myself out ahead of the weekend. A good filter for candidates I think would be those still below their 50 day moving average. Futures are currently down 5 points, we'll see how earnings go and how things react.

Total Return for 2009: 131%

The ACH That Got Away

2009-04-15T15:02:00.000-07:00

My decision to sell positions yesterday appeared smart early in the day as we opened lower. However, I noticed that pre-market trading ACH was up a dollar and I thought, "damn". What happened was news was released that they would possibly be taking a larger stake in Rio Tinto with a loan and this was positive news. The gap held and it went higher ending up two dollars on the day. This would have translated into another 10% gain in the account and likely a 100% return on the option itself. I am upset because it always sucks to see something go higher without you but in reality I have no idea that news is coming out and in reality the stock likely would have pulled back as expected without that news. This just makes it a bit harder to be patient and wait for a pull back but I must wait, probabilities are in my favor to not have it run in exponential fashion higher.

One concern is PCU which I re-entered today on a pull back. It traded poorly all day even with copper futures hitting new highs. I am sitting with only a small loss at the moment but it didn't participate as much in the rally into the close as did other stocks. I'll watch it and if it continues to trade poorly I'll cut it loose. I did get into some steel which was my only saving grace today, it looks poised to continue higher as it finished on its highs at the close.

My tech play in AKAM traded down to support today which is also testing my patience, with the VIX breaking down it is pulling the option premium down as well so even though its higher than where I got in I am losing money due to the decay in volatility and time. It is only a small loss though, and if it breaks support i'll hop out, GOOG could be the catalyst for it to move higher or lower tomorrow with it's earnings.

At the end of the day we did stage a fairly impressive rally especially in financials to finish right back at 850. I only was up slightly on the day which is better than the losses I had earlier of course. I did buy some puts on the S&P at the close as a hedge against poor earnings tomorrow sending us back down. My thoughts are, if earnings from JPM and GOOG are good with good guidance on JPM then we go higher, possibly much higher to 875. If they are poor then we may have a significant sell off. I am still long biased but am more comfortable since I have my hedge on. We'll see what happens.

Total Return for 2009: 129%

Surviving the Sell-Off

2009-04-14T20:21:00.000-07:00

We had a pull back today in the broader market by about 2% on the S&P, the financials pulled back significantly, the XLF ended down 7%. Today was almost perfect in terms of my positions, the XLF was down a lot, 2 were down slightly and the remaining 4 were up significantly. I got a bit greedy and waited too long to take profits and gave up a few percent more on the day but I guess you can't get them all. I again struggled on whether I should just let my longer term options ride or roll into higher strikes as they went higher to lock in profit.

I decided to take profits on 2 long positions as we started to pull back, I dont want to get in the habit of taking profits too soon but they had a good run the past few days with no pullback so I figured they were due for a little correction and I can get back in then. Selling them did save me a few percent by the end of the day but you never know what will happen tomorrow, and I did let them slip too much before selling. I was then more evenly positioned as it appeared we were breaking down. I watched the XLF on the daily chart and held my puts until the downtrend that had been in tact all day was broken. This was good initially as we did rally but that was given up by the end of the day and it finished at the lows. It may have been smart to just stay balanced into tomorrow however I felt there was more upside risk with Intel's earnings release and the fact that I assumed we would have some selling for options expiration. The VIX was down even on this deeper pullback, which is either bullish divergence or market maker manipulation.

I am now positioned long in four positions but much less than before so if the pull back continues it should be a limited draw down for me and I can look to take advantage of pull backs in the stocks I like. I will be frustrated obviously if they gap up again tomorrow without me but again you can't get the entire move, and I'll wait for a better entry.

Intel reported better than expected results but issued weak guidance and the stock sold off about 6% after hours. This looks bearish for the market tomorrow and tech in general. Some bullish signs was the statement that they thought pc sale declines had bottomed already. At some point even though we have run up significantly so far I think people need to recognize we have had fairly decent earnings and this could in fact be a turn around.

I'll be watching the oil inventories tomorrow because oil has been selling off going into it so if it is bullish then materials could be the relative strength once again and it would convince me to be back into my aluminum and copper plays. My hope is we see a pull back in the morning, then a bullish inventory report and they rebound. With the significant pull back in the financials today it could be building in some more negative surprises since most will not be like WFC and GS, if they are then we will go higher in a hurry.

Options expiration week is always somewhat of a guessing game of where the stock will get pinned, it may be smart for me to just wait till monday of the new month when options are cheaper to get into some different names. We could see a deeper pullback in stocks as the retail sales number may have made people realize things aren't as good as they may seem and when people don't have jobs they don't spend. I was surprised by such a poor number which is why I was more pleasantly surprised to do as well as I did. Until individual trends start breaking I will continue to buy dips but may do so with reduced position sizes until we get out of the rest of earnings season and establish more direction.

Total Return for 2009: 128%

The Trend Is Your Friend

2009-04-13T15:04:00.000-07:00

The most basic principle in trading; trade the trend until it is broken. Dip buying continues to be profitable, I got back into positions I wanted to near the lows of the day on the pull back with higher strike options and into a couple new positions as well. Towards the end of the day I had a nice profit and we were hitting up against resistance I had expected so with GS earnings in mind and the fact that most financials had run about 20% since WFC pre announced I figured we may be due for a pull back if GS was even the slightest bit disappointing. I bought puts on the XLF as a hedge but still have a long bias. After the bell the XLF started jumping around and my position was flucuating between a profit and loss and I wondered what the hell was going on.

Apparently, GS released earnings early and completely blew them away, earnings almost double expectations. They also announced a capital raise of 5 Billion. The stock is down slightly after hours. Had they not announced the capital raise I suspect it would be up big in afterhours. As of right now I am sitting on a small loss on my puts which is fine given the protection I had to disappointment and my view of limited upside risk. I am torn on whether or not to leave the hedge on, the position size is slightly large for my taste so maybe I'll keep it but scale it back. I'll watch how the financials trade in the morning, GS was likely one of the strongest to report so others may not fair so well making the hedge a good one. This is bullish for the overall market though, so far not too many disappointments where it counts.

Intel reports tomorrow, I think it will beat and guide higher but the market also expects that so it may be built in, either way that is likely bullish for tech, retail sales should be decently strong for March as well, another reason to keep going up.

We seem to just keep trading near these oversold levels, we'll pull back enough to ease off then go up again. If we have another gap up I think that will be the time to sell into it and position a bit more bearish in the short term to take advantage of a pull back. With options expiration this week I have to expect we pull back at some point fairly decently, but of course I could be wrong.

I picked up exposure to some agriculture and dry bulk shipping as this reflation trade continues. In addition to picking good stocks I have sidestepped a few disasters by being disciplined. My puts on WYNN for example I was in at 20 and out at 21, now it's trading at 32. I sold out of WFR and was planning to buy on a pull back or roll into better options but after the close thursday they had a warning that sent it down 15% which would have turned my profits into a loss(this was lucky but my action of taking profits saved them). Last is ESRX, announced it was buying Wellpoint and was up big on that news which would have given me a large loss on my puts. The theme seems to be that it is semi-hazardous to be holding puts but I think that will change after earnings season and more information comes to light.

Total Return for 2009: 117%

100% Return Barrier Broken

2009-04-09T16:07:00.000-07:00

So I didn't do an entry yesterday, with the late day rally in stocks yesterday I had a decent gain on the day and ended up back at a 90% return. I cut my 2 losing put positions and held on to the remaining weak ones.

Today we had a huge gap up at the open thanks to Wellsfargo which essentially started my account back at previous highs which was nice. The two new longs I had taken were working out nicely as well as my previous long positions. I closed out my remaining put positions although I possibly should have held my LMT puts as it was not participating in the rally at all but I assumed it would. overall it finished about where I got out so it wasn't a huge loss.

I closed all but 2 of my positions at the end of the day and will look to get back in on monday after the holiday. I could have taken the new positions ahead of the weekend but I would have suffered needless time decay and also had the risk of bad news coming out over the weekend. The other side to that is we could have good news come out and it gaps again without me participating too much. My hope is that we open flat to slightly down and then I get the opportunity to get back into a few stocks with higher strikes so I lock in profits and can keep participating in the trend.

I obviously can't participate in everything but I regret not getting into MS when it was down yesterday, I had thought about it but there was some definite risk of uncertainty, would have been a nice gainer today though. As usual I'll look to get in on pull backs.

If we get confirmation of good earning and the reflation story is still solid I think the next big gainers could be the Agriculture names more than they already have been. The market is acting very bullish with the VIX breaking its 200 day moving average finally, treasuries are nearing the 3.00% mark which would be very bullish if that is broken.

Breaking 850 is a big deal, and if we finish higher from here that will be a good confirmation signal. In the short run I think we get to 875, then pull back and resume higher to 900 eventually.

More than my return performance I am excited by my discipline. I am positioned ahead of these moves and take profits or partial profits and am patient to re-enter on pull backs. I am still a ways off from recouping my learning losses of the previous 2 years however, I am very confident if I maintain this mind set I can do it fairly efficiently.

I contemplated taking only partial profits simply because I didn't want to be out of the next gap higher if people took this as confirmation of a break above 850, however that would have doubled my commissions which is already eating up 6.8%. I need to see if there is a better way to handle things but as of right now I am not extremely concerned. I am sitting in 90% cash looking for some good opportunities going into next week. If we see options getting cheaper in the future I may go back to the old strategy of selecting one strike out of the money but I think we may still be a ways off from that. We'll see what happens on Monday, expectations may be getting slightly ahead of themselves now, we will see how the market reacts to Goldman Sach's earnings on tuesday.

Total Return for 2009: 106%

Worthless Hedging...

2009-04-07T21:24:00.000-07:00

This has happened before and is probably the most frustrating thing possible. I position myself for protection against pullbacks so I am hopefully less affected, yet the relative weakness positions go against me at the times they should be even more weak.

I have obviously had large up days, and leverage cuts both ways and can have large down days but when you expect and plan for them and then have WORSE results because of new positions it makes you wonder if it is even worth it. In reality the positions didn't make it that much worse but it was worse nonetheless. In actuality I could have waited for a re-test after the break down in BAX, however with the market being down today(and that being my assumption yesterday) why would I assume a stock making new lows would be up on a down day? I wouldn't assume that and did not which makes it more annoying that it was causing most of the problems. All things said and done I would have avoided probably another 4% of losses had I just held my old positions through till today not to mention saved all the commissions I paid yesterday.

I got a bit spoiled having multiple up days in a row but it makes me think that I should possibly try and pick relative strength candidates and hedge with the broad market and not specific stocks. Had I chosen the SDS like was my other plan I would have had a nice hedge and limited my downside nicely yesterday and today as well it looks like.

Right now the futures are off by about 10 points near the all important 800 level. I am hoping tomorrow we test 800 and stabilize, if we do I will look to enter some nice long positions with good entry points. I feel like we could see significant upside in the financials if they come out better than expected but it definitely requires risk management. I've got a large list of stocks I'd like to buy but they were all at or near their trend lines today so tomorrow will be a true test where they could breakdown or hold.

Alcoa reported today, with a miss as was expected although a loss of .59 vs .56 is worse than expected. The stock was only off 3% in after hours though so it could be worse. Futures held up then sold off after market close. I feel like the market just needs to get to the 800 level and test it again and hold then resume after working off some of the overbought condition.

Total Return for 2009: 84.5%

Hedged for Earnings

2009-04-06T13:32:00.000-07:00

Well, I was essentially a day late in doing this. The futures last night were up initially and I was glad because I was wanting to get into some put plays on a rally because I figured we would roll over at 850 given the fact that we haven't seen any earnings yet to support higher prices. But the futures sold off heavy and opened up lower so I didn't get the chance to hedge ahead of time.

From a bullish standpoint stocks rallied into the close to finish at the 835 level which was previously resistance and now support. This is supportive of higher stock prices and we saw the McClellan come off it's oversold levels.

I was pissed that the entire day my one hedge was going against me and not being a hedge at all. It's almost hazardous to be short anything with all the rumors of takeover going around it had my ESRX up all day until it eased off at the end.

I gave back some today but took the opportunity to balance myself a bit more for the uncertain times of earnings season. I doubled my number of positions and now have a 3:4 put/call ratio, so I am still bullish but much better than my previous 1:3. I think conservation of capital will be key right now so I can get ready to play the next leg, whichever way that happens to be. I have a dilemma because I could have either closed out all my positions and just day traded for the next few weeks, or hedged myself. I like the idea of not being exposed to gaps in either direction but hopefully I have taken care of that now. Depending on how this earnings season goes I may change my strategy in the future. I have 2/3 of my capital at work so if needed I can take advantage of day trading opportunities or longer term trends that present themselves.

I hope my relative strength and weakness plays work out mostly in my favor. I am actually fairly bullish however you never know what will happen with earnings. If financial stocks have decent earnings I think we have an uptrend for pretty much the rest of the year but we'll see.

Total Return for 2009: 96%

Up, Up and Away?

2009-04-03T14:59:00.000-07:00

The market managed to finish in positive territory near its highs after spending most of the day negative. The nice thing was that all my positions initially were working, my put positions were down and my calls were up, which is exactly why I had the hedge on. Throughout the day however IYR got very strong and it seemed like it would continue so I cut that position loose with a small loss. This was good as it continued its move upwards and would have resulted in more of a loss had I waited till the end of the day. I kept on my other position as it failed to participate in any rally throughout the day and I hope the weakness continues into next week and will help hedge against any pull backs.

One position I debated before was Visa which broke out huge today, sucks to be me but I'll wait for a pull back just like RIMM and look to get in there. I was tempted to add another put position at the end of the day but I think it would have been unnecessary to lose that time decay. I'll reassess next week. The interesting thing is just at the end of the day the VIX finally broke down below 40, albeit slightly which breaks its 200 day moving average. This generally should point to higher stock prices and easier option trading but we have yet to see many earnings releases. The dip is MS came and went today and I didn't get in unfortunately. I feel like it could run for the next week or so into goldman sachs earnings but I'll look at it next week.

I possibly should have taken some of my ACH off ahead of Alcoa earnings on monday however ACH already had their earnings so I don't see why that would really matter to my position. The ideal scenario is they are better or less worse than expected and ACH catches a bid.

All my positions are working nicely however we are reaching an oversold level in the markets so I am reluctant to take more risk to the long side right here and am more likely to take some profits or add some hedges. The dilemma I face is I have July dated options and I could just let them go but it is generally beneficial to roll them as they get deep in the money to lock in profit and have less delta in case of a pull back. I was unable to break the 100% barrier today but hopefully if things work well next week I can. That will be a nice mile stone but I still have a long way to go to recover from before but I'm definitely on the right track.

Total Return for 2009: 99%

The Party Continues

2009-04-02T15:03:00.000-07:00

Stocks rallied on the G20 comments and the change in FASB mark to market rules but somewhat less so as some financials were down on the day. We nearly reached the target of 850 today like I had thought may happen.

I am kicking myself on two fronts. One, I didn't take any of the day trades, I wanted to just buy the open which would have done nicely. I was scared to pull the trigger because I have done that before and taken away the profits of my longer term positions and just felt like I set myself back. Two, I didn't get into RIMM back at 42 when I had looked at it, because it will likely open up near 60 tomorrow gapping 10 dollars after hours off earnings. Oh well, I'll look to buy on a pull back. Patience is key.

My positions did well today, outperforming the index however I am slightly concerned about my ACH position. It was up 8% but came well off its highs to finish near the lows at the end of the day and didn't hold on to its new high above 17.30 which was essentially rejected. At the highs of the day I took on two put positions to basically make myself 3:2 long biased and have some downside protection after such a large run. The execution was perfect in terms of timing but the relative weakness plays weren't as weak as I had hoped so the hedges didn't work like I wanted. The important thing is that I have the hedges in place and have some downside protection because in reality we have moved very far and very fast.

Depending on what happens tomorrow I'll position myself accordingly ahead of the weekend.

Total Return for 2009: 92%

Trade Analysis

2009-04-01T22:57:00.001-07:00

So, for any of this to matter or teach me anything I need to figure out my statistics and how I am doing and what I can learn so I can improve or continue doing what is working.

These are the statistics YTD:

Wins:11
Losses:13

Average Profit: 1,606
Average Loss:525

Win Ratio: 45.8%
Loss Ratio: 54.2%

Expectancy: .458(1606)+.542(-525)=451.5

So we can see so far this year I have been pretty good about keeping a risk to reward of 1:3. I learned something interesting that could be very telling and will likely need to be adjusted. Of my wins, 9 of them have been long positions, either stock or long calls, or short puts. Only 2 were short positions(long puts). My losses are also mainly long positions with 10 being long and 3 being short.

This is obviously fine during an uptrend and bull market which is likely the reason for the recent success of March since it has essentially been all upward. This also generally works with the general bias of the market since there is a general upward drift when we aren't in such an extreme environment. I obviously like to be long rather than short, and take my losses when they don't work but I may get better and more consistent results if I am more flexible. This is likely the main reason for severe losses last year, I was trading counter trend. This seems stupid but you'd be surprised how you sometimes forget the simple rule of trading with the trend.

I have a positive expectancy which is what you ultimately need to have to be a successful trader(investor) and have positive returns in the long run. Theoretically if I keep a 1:3 risk reward ratio I need to be correct only 30% of the time to have a positive expectancy. Obviously the higher the win ratio the better the returns so I'd like to at least hold it at 45% or improve if possible as an average over the long run but even if I have a bad month of taking positions I know I can be wrong 70% of the time and still be profitable. It seems counter intuitive and is but the statistics and probabilities must be embraced to have any chance of succeeding otherwise you will always second guess yourself.

This analysis has exposed the fact that in bearish markets I need to embrace the trend to keep up performance or have less volatility in my returns. I clearly prefer a long bias and so far patience and scaling out of positions has served well to lock in gains and reduce volatility but I need to be able to do it the opposite direction when necessary.

The only thing that I can't do much about now is the fact that my trade commissions have eaten up 6% of my profits, however I can say that patience has helped that greatly. I will look to summarize results again at the end of April.

April Fool's Gains No Joke

2009-04-01T22:17:00.000-07:00

So the start of the month started off fairly decently after looking bleak to begin with. The futures were down significantly coming into the open. However once we opened we essentially rallied even despite ADP numbers of nearly 750,000 job losses.

I had a single put position on WYNN coming into the day and I assumed with its relative weakness it should do a decent job of limiting a gap down loss even with just that position. Oddly though I noticed that it didn't gap down at all, in fact it was break even and going positive right on the open. This concerned me so I cut the position loose right away at break even. This was a good move because it went on to rally 8% on the day on apparent good news out of MGM or LVS. The bank index was strong fromt he beginning and europe had basically rallied higher from the open as well so I was tempted to buy MS when it gapped down but didn't want to take anymore risk.

Had I taken that risk it would have played out well and likely will again tomorrow but oh well. I was thinking it was possible we broke down yesterday but the market seems to be fairly bullish. Futures are up 1.5% and Asia is trading 4.5% higher before the G20 meeting. If we get positive news out of G20 and there is a revision to mark to market accounting it is entirely possible that we see 850 tomorrow on the S&P. I only have 1/4 my capital at work so I may look to day trade futures tomorrow to take advantage of any possible rally.

I like the start to the month of April so far, it appears it will continue tomorrow and as we get higher I will scale out of my bullish positions. It is possible we get to 900 in short order but my theory is we don't go there is a straight line and I will look to add on pullbacks until something changes. If we have fairly positive earnings I think 900 is pretty much guaranteed, although the fact that the market keeps shrugging negative news off maybe it will go there anyways. We have to be aware of being too bullish though because that is when unexpected things can cause severe reversals.

I am thinking it may be good to just keep a rolling tally of return along with my blogs from now on to make things easier. :-)

Return for 2009: 82%

Month End Shenanigans

2009-03-31T13:26:00.000-07:00

So we had the quarter and month come to a close today. March was a record rally for stocks since the bottom of 666 on March 9th. I was in all cash until during the day yesterday I started to take some positions again. I still have my 77% gain for the year, gave back a few percent today(I had gotten to 79%). I am upset and cautious at the same time because none of my positions performed today even when the market was at it's peak up 2.5%. I suspected a sell off into the close but only took one put position to protect myself and should have gotten into another as planned as it would have limited my loss quite a bit more.

We are at an interesting point right now, we rallied to 810 but failed to hold 800 on the way back down so it appears to be a rejection of that level. I am always trying to think about what big money is going to do, was the sell off a locking in of profits that will set us up for buying tomorrow for a good first day of the month? Will they buy going into the mark to market meeting or sell and buy on the result? I have to weigh all these things.

The concern about my positions is warranted because they previously were relative strength candidates and are now weak, but how much of that was positioning for the end of the quarter? If we don't get any kind of positive results or signs of stabilization from earnings I think we will see a retracement to 750 for sure if not more. Buying the dip worked again in a few names I ended up passing on. I guess it worked out the last time I passed, and with the uncertainty it's likely better to take less risk than more to any one direction.

On a side but related note, I read the book Ugly Americans, which was very interesting about an ivy league guy who goes over to Asia to trade futures and the type of world it is. Anyways, he basically makes his entire fortune in a single trading day arbitraging stocks that are being added and removed from the Hang Seng.

This is essentially what good hedge funds do on a regular basis, buy good company stocks and short bad ones so they are always "hedged" hence the term. This is also what I generally will try to do buying relative strength and shorting relative weakness. I am trying to determine what some good pairs trades will be, one I have thought of could be long AAPL and short AMZN, the thinking being that apple will come out with a kindle competitor and steal market share and any amount built into the stock for strong kindle sales could come out while apple could go up. On the flip side though is that Amazon sells apple products so it would benefit from the revenue making it less appealing as a pairs trade, but this is just how I'm trying to think.

If natural gas can get any type of bid at all I think CHK will finally confirm a triple bottom and be a very good trade but it is still at the bottom range of its downtrend.

Overall, I am very happy although it was annoying to lose money today it is part of the process. I'm cautious going forward trying to preserve my gains but still take on new risk when it is good.

Seller's Remorse

2009-03-27T00:29:00.000-07:00

I took my last position off in the XHB today and am sitting in all cash. My plan is to wait for a solid pull back in stocks as I think they are getting ahead of themselves and we are fairly overbought. Had I held onto everything through today I would have made a few more percentage points. Had I bought back after selling when I had thought about it yesterday I would have likely made at least another 10-15%. However, in trading you can't think in "could haves" otherwise you'll go crazy. My only regret is that I didn't trust my instinct and so far my timing has been very accurate.

For now though I am OK leaving a few percent on the table, given the fact that in essentially a month I have had what some people would like in a few years. On top of that I have not done it with a lot of risk(seriously it's true), I have been patient and waited for entry points and managed risk and let winners run as needed. I have used the charts as well as some logic and macroeconomic viewpoints to pick out some very good relative strength candidates.

At this point in time I think the upside is limited in the short run, likely the S&P 850 is the upside maximum unless we work off this oversold condition first before resuming. The one thing I want to be weary of and not do is become paralyzed by performance numbers. I don't want to be too scared to take on new risk in fear of losing the ability to say "I have X% return this year". I think that partially happened with my decision to not get back in after selling. The reality is I could take 5 new trades and lose on all of them and still give back only 10%, but as this example shows you need to take risk to gain reward and those positions could keep running until S&P 850 and beyond. The truth is you don't know, you just have to manage your risk properly.

Sitting on a nice percent gain is literally like sitting on a position that is already profitable. It helps emotions a great deal, at least my emotions anyways. In my mind I feel like I have the luxury to sit around and wait because this month was so good there is no reason to rush out and take on risk just for the sake of being in the market because that will likely produce bad trades. Patience has worked so far, so why change now? We are in an uptrend in the short run so as that continues I will continue to buy on pullbacks and scale out into strength until the trend changes. I have my spots chosen as to where I'd like to get into positions so I'll wait for things to come to me, and if those don't work there will be plenty of other opportunities that present themselves.

I am curious to see how the month end plays out. Futures are down about .5% right now, will profits be taken at some point or will we see window dressing all the way into next week that may in fact coincide with us getting to the 850 level? Our subsequent rallies have gotten smaller and smaller lately, we had a hard time getting above 820, and only got to 832. This could be a sign of a good bull trend starting as moves get smaller and more predictable but the VIX has yet to break below 40 meaning there is still expectation of volatility ahead. We shall see, if I take on any more risk I think it will be minimal and more delta neutral. Earnings season will likely be when we find out if this is a short term top or if it has fundamental legs...

Two-A-Days

2009-03-25T14:27:00.000-07:00

Two posts in a single day? Probably a first ever. I just felt compelled to weigh in on the trading day. I took nearly all profits today close to the high of the day because many of the stocks seemed to be behaving toppy and having a hard time exceeding previous highs. My plan was to buy again on a pull back to 790, which ended up happening today but I was gun shy in pulling the trigger thinking "will buying the dip work again?" It did work and now I am kicking myself. In reality, I could have approached my profit taking a little differently and scaled out as usual to still remain somewhat long but I thought it would be irresponsible to not take some profits. I have one position open and am standing on a 77% profit for 2009.

I think the entire action today was simply positioning ahead of the GDP and jobless numbers tomorrow. My expectation is that the numbers are better than expected, I am taking the patient approach now and will wait for the market to confirm the continuation of the trend, if we break above 825 we will go to 850 in short order. Had we broken above it today I feel that the better GDP numbers would have been built in and it would be a sell the news, with the pull back mid day today I feel like there is still upside and the market will want to get to 850. I am aware of the developing oversold condition so if the above happens I will likely shift to a more short bias.

If the other side happens and things are worse than I think or it still is a sell the news scenario I obviously feel good about being patient and taking some profits. Overall, taking profits still netted me money except on one position. If things want to continue higher it's likely I'll roll into different options to help lock in profits and look for good setups.

March Madness

2009-03-25T00:01:00.000-07:00

While people are experiencing March Madness for the NCAA, the market has also been going crazy. We have finally started to see some consistent movement to the upside and some of it has come in very large movements. Nearly a 7% move on monday as the treasury announced it would purchase bad assets from banks.

My risk management and long bias has served well in this environment and the market is acting like it wants to move higher as well, if it holds the 800 level I think we will reach 850 in a short time. I currently have a 67% gain on the year, which monetarily isn't huge since my account got fairly depleted last year but my trading and discipline has done very well this year, letting winners run and taking profits at targets and cutting losses. The key now is to again maintain and try and keep producing positive returns consistently, this type of performance is likely not very sustainable but even if I can do 5% gains a month for the rest of the year I'll double my account.

I would like to see a solid test and hold of 800 then a resumption of the trend upward and I will look to take more risk to the long side. If we start to see improving economic conditions not to mention better than expected earnings we could see this rally continue for a while. Is it a bear rally? Technically yes until it exceeds the previous relative highs of 1650, it doesn't matter to me, you have to ride them while you can. Increased patience is probably one of the other big factors to the recent success, waiting for the good entry points. We'll see what happens going forward but if I remain smart and disciplined and patient I should actually have to owe money to the government at the end of the year, who would have thought that was good? ;-)

March Maintenance

2009-03-11T15:33:00.001-07:00

My bullish bias has played out well this week so far. I have had some positions in relative outperformers such as FCX and AMZN. On monday at almost the exact low I sold puts against the FAS( 3x bull financial etf), this was simply good timing but also a good trade from a logic standpoint. Financials were severly oversold, the FAS was trading at $2.50, and I was able to get .60 a contract for a march 2.50 put that is right at the money. Volatility was insane at 340%(not too insane since it is 3x) so I have the likely hood of volatility decay on my side as well as time decay AND the fact that I literally have limited downside at this point. I sold 20 contracts so my risk to reward 3:1, generally the opposite of what you want but in a naked selling scenario you generally have much larger risk. The other appealing thing, and the only real time you should sell naked puts is when you are comfortable owning the stock and having it put to you. I would have been fine having the stock put to me, I would have a cost basis of $1.90 at a likely low and significantly oversold market level. All of these things put the probability of immediate or future success in my favor.

I have tried to lighten my bullish positions and have scaled out of FCX with a target price of $37 in the short term to unload my remaining 2 contracts. I have found that scaling out is a very helpful method to control emotions and let winners run. It allows me to lock in profit and not have as large of account swings to the downside when stocks pull back. Depending on the price action I will wait for a pullback and look to get back in to FCX as I think it's longer term target is likely $45 in the next few months. My target on AMZN in 75 now that it has finally broken out of its 60-65 range, however I am holding shorter dated options so if it has much trouble getting above 70 I may get out and roll into a longer dated option on a pullback.

I took a new position in CHK today, as I think natural gas should be close to a short term bottom and if we start to see an uptick in prices I think CHK could see a significant move upwards. It broke above resistance at 15 so hopefully that will continue. Oil got creamed today after a bearish inventory report but if it can stabilize and start to move up again that should help the energy sector and my position.

Tomorrow is the hearing about mark to market accounting. My guess is that nothing actually happens, or if something does happen the reaction is muted given we have had such a run up into it. Most financials are still in longer term downtrends at resistance after these large moves up. Either way I am not very concerned with my FAS position, it is highly unlikely the stocks re-trace their entire amount in 7 trading days but it is of course possible since they moved up this much in only 3. Like I said I am fine taking delivery if it comes to that. I would almost prefer a pull back so I can get into some of the stronger names, I will likely look at MS if it pulls back.

Even though everytime I say this I immediately get smacked by the market gods but I currently now have a nice positive return for the year after the most recent move, now it is a matter of maintaining it with risk management and patience to wait for the good entry points.

Will It Ever Stop Going Down?

2009-03-08T22:42:00.000-07:00

I was asked in an interview whether I was bullish or bearish on the market(best question ever in an interview). I generally like to just say ( or think) I am risk managed. I had made the statement that I don't necessarily think that the S&P was going to go to 600 or lower, however I don't believe anything is out of the question so you must continue to manage risk appropriately. I said people think that this time will be different than before and I said that seemed to be a stupid assumption, this time could actually be worse given all that is happening so if X happened because of Y before, why would you assume Z would happen( if Z is better than X) given the same input.

Do I think the bottom is in? We won't know that til it happens but I think it is much closer. There doesn't seem to be the same panic there was back in october and november which is good but still hasn't stopped the grind lower. We are about 55% off the highs, if we see another 10% downside I would be very comfortable committing long term capital to the market. The reason being that the average bear market has gone down about 50%, I would say this scenario is worse so a 65% decline would not be out of the question. Do I still think there is less downside risk than upside potential? Of course, but the thing that must be considered is time. There is unlimited upside (theoretically) and in my opinion probably a maximum of 20% more downside. We have to determine whether this is acceptable risk for our required return. If our time horizon is one year and we think MAYBE there is 20% upside over the next year is it a good trade if the risk to reward is 1:1? No. If you assume in 10 years we'll be back at the highs, is a 55% return good for 20% downside? maybe. Being young I have the advantage of time, I like to focus on more shorter term trading but for longer term investments in other portfolios I think it would be smart to put a portion to work. Generally I disagree with averaging in but there are some potentially "attractive" buying opportunities people are simply too scared to jump in, if you retire in a few years that is good to be scared but if you retire in 20 you are an idiot.

I myself am still beating the market but am down 4% to the markets 24% YTD, obviously I'd prefer a positive return. Right now there looks to be some positive things happening in the market. Commodities and commodity stocks seem to have bottomed, they are higher than the panic lows of october and november. Gold is not above 1000, and we are much lower than in october and november. Copper is moving higher which is a great global economic demand indicator. It could reverse but so far it has bottomed and I think a break about 1.71 would signal further upside in materials, crude oil is holding up as well.

As crude holds up, the energy sector is severly oversold which generally points to a short term and potentially long term recovery. Bullish percent figures are in the single digits. Same goes for financials. There is the hearing about changing mark to market accounting, if that happens and they pass a measure to alter it this could spark a rally that signals the bottom in the market. The idea is balance sheets would virtually improve overnight. I think the upside potential warrants taking some risk and I will be doing so on monday. That obviously doesn't solve all the economic problems it merely masks them to an extent however I think the ensuing rally would be hard to re-trace again without a lot more negative news. Plus there is so much bad news already built in to these stocks the downside is limited if it doesn't pass.

Another place I am looking is China, it seems to be holding up much better than the US, as evidenced by the FXI, we are at new lows and the FXI is significantly off of its lows and this relative strength could continue.

In the short term I am bullish given the significant oversold level of the market shown by the McClellan Oscillator and the bottoming formations in some leading indicators like commodities and long term treasuries. We'll see what happens, either way have to manage risk and diversify.

A Glimmer of Hope?

2009-01-22T11:09:00.000-08:00

Yesterday we had a fairly decent snap back rally in stocks. It came out that apparently bank CEO's and executives were buying their own common stock. This is bullish in that it is likely the CEO's would not buy 11 million dollars(in one case) of common stock if it was going to get wiped out and go to zero. I would assume they know something we don't, however it hasn't been the case so far as they have apparently been oblivious to all the write downs as well. Regardless, this is a fairly positive sign and was taken as a positive by the market.

In addition to insider buying, we had Apple release it's earnings and blow them away. They blew away earnings in arguably the hardest quarter ever to sell high priced products. This shows that people are still buying high end electronics if the quality is good and that the consumer is not totally dead. I would like to be long Apple on a pullback for the longer term portfolio, the only question mark now is Steve Jobs which really shouldn't impact the stock but does so I have to be cautious. I will start to look at the financial statements and do some analysis on cash flows and make a determination.

We have a couple more important earnings releases in MSFT and GOOG. MSFT disappointed and announced job layoffs. GOOG reports after the bell. My guess on Google is that they beat expectations simply because if people are staying at home more due to the economy, they are likely on their computers more giving them more revenue in ads and search. Just my hunch, they are hard to gauge without statistics.

We also had jobless claims and housing come out today both worse than expected. I would argue that new housing permits going down is a positive since we need to get rid of excess supply to have a chance of housing prices stabilizing and improving. Jobless claims higher than expected is definitely not a good thing and will be one of the key metrics moving forward. However, we have to look at the market reaction after another initial sell off the market has recovered a lot of the losses as of this writing. The more bad news that comes out and gets discounted and the more we hold the better is the case for a bullish bias. We are currently in deeply oversold levels so I would think a rally is coming at least back up to the 860 level in the S&P 500 would be my guess. If we get good news out of the Obama camp and some positives in earnings this could be the catalyst.

I currently have no positions, I only have a 1% gain overall for this month however that is compared to a nearly 8.5% decline in the S&P 500 so I am still having decent outperformance relative to the major averages as of late. My only position is long the Euro which is somewhat a long stock play. If stocks do rebound we will likely see the Euro move up, oil move up, dollar move down. Treasury yields have also made a higher low and exceeded their prior high which I would think is also bullish for stocks as people get out of the safety of treasuries. TBT could be one way to play this trend.

In general, we can't have a sustained rally without financials participating. The banks that have held up better and made smart aquisitions will likely be the leaders coming out of this. U.S. Bank still has positive earnings to report, although the street didn't like the results they have avoided the massive write downs of others and will likely be a great company to own going forward. Wells Fargo and JP Morgan also made some smart moves and could be good plays.

So far 800 has held on the S&P in the face of nasty news, combined with the oversold level in stocks it supports a short term rally however I don't want to get too aggressive, patience has been working very well as of late so I am going to wait for confirmation before making any moves. At some point the market has to start discounting a recovery but I don't think we are quite there yet, possibly around March I think we could see signs of improvement, but again I'll wait and see.

New Year, New Ideas

2009-01-08T14:20:00.000-08:00

So as the new year rolls in I am trying to learn new things that I find interesting and that could help me become more profitable. I have still maintained my relative out performance as of late, in the past 3 trading sessions I have been +4%, 0, +1.5%, the thing that is annoying is that on the flat day, I would have outperformed by 1% had I not taken a losing day trade on the futures. But I can't be that upset, i limited my loss at 1% and it could have gone in my favor and given me even better performance.

I had the privilege of speaking with Eric Utley who is a day trader and one of the two guys who runs Trading Addicts along with Jeff Kohler. I always enjoy hearing about real world experience, even if it is just to hear that they too take losses and make mistakes. He seems to wait around A LOT for a trade but said that he has a win % of 70%. I would wait around all day too waiting for those types of entries, I just wish I knew exactly what he is looking for that is such a high probability to him. If I knew I was taking a trade with 70% probability I could easily be mentally prepared for a loss knowing it was a minority of the time.

So I ran into a friend who is also into trading and he told me about an automated trading program for forex. I have always had an interest in these programs but it seems like unless you are at a hedge fund like Renaissance Technologies your program likely doesn't work. So far this program I paid 139 for doesn't work at all, luckily I am only using it on a demo account so it isn't real money being lost but I did lose 139 in paying for it. Supposedly there is a 60 day money back guarantee so I'll just go that route.

But besides that it seems like you should be able to automate trading which could be very handy if you work a regular job and at the same time had a program making you money. I am on a forum that is dedicated to these programs and most the things I see I laugh at. They have so many indicators and lines all over the place which I don't use. All I use are support and resistance lines, VWAP and sometimes pivot levels. It seems like if you have a profit and loss system that has a positive expectancy and a fairly simple order entry you could make some money. Of course much smarter people than myself have likely thought that too. Apparently the winner of a programming competition that turned 10k into 130k in 3 months has phd's in math and physics and his programming is based on Neural Networks so I am fairly disadvantaged. However as I have watched these programs run on the demo accont most of their entries are down right stupid and are at places where I definitely would not have manually taken a trade.

My idea would be to use a simple system that detects a trend change intraday based on say a 1m or 5m trend then compare it to the 30m trend and only go in the way of the 30m trend. Or just do a system based on a daily chart and trade the changing trends. The other more complicated system that I have an idea for would be to detect flag formations on various time frames and then take a trade once it breaks one direction or the other. You can see this happen on charts decently often, if you could determine with decent accuracy a flag and a break and use a stop loss of less than your profit you could possibly have a long term profitable system.

For example, say it is forex, and you have a flag that is about 50 pips in height, generally this is a continuation pattern and a break signals a resumption of trend for at least the height of the flag. Lets say I think it generally continues for 2x the height of the flag and once it breaks the flag it should not re enter the pattern, so I give it a stop loss of say 10 pips and my target is 100 pips. That means I could be wrong and get stopped out 90% of the time and still make money. Of course if I got stopped out 90% of the time I'd want to see if I was getting a lot of false signals or if my stop loss was too tight, but the point is theorteically in the long run it should make money. If you were able to be correct and reach profit 30% of the time you would make 230 pips of profit every 10 trades, depending on lot size and frequency that could be a lot of money.

We'll see if I can program these ideas into reality because it seems like people much smarter than myself can't do it but I will learn a great deal in the process and who knows maybe I'll come up with something. ;-)

Relative Outperformance

2008-12-19T08:04:00.000-08:00

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.

EMH: Fact or Fiction?

2008-11-26T20:30:00.000-08:00

As the impending doom of the CFA Level 1 test date approaches my review of the material has prompted me to talk about Efficient Market Hypothesis. In the texts they outline 3 scenarios, weak form EMH, Semi-strong form and Strong form EMH. It is humorous how the text essentially says if EMH holds then no single person can really earn above average returns on a risk adjusted basis. At the end it basically says there is conflicting information.

The odd thing to me is how it barely touches on market psychology and behavioral finance when I think that is the more relevant factor that drives markets. The amusing thing to me is when they compare fundamental analysis to technical analysis and how they seem to be mutually exclusive. I always take fundamental analysis to be the more "conservative" discipline however when it is examined more closely how conservative is it? In addition how much different is it to technical analysis? The reason I say that is because no matter what you are doing, either fundamental or technical analysis, it involves two things: speculation and confirmation.

In fundamental analysis, which is supposedly more conservative you are speculating about future earnings and future cash flows of a company and hoping past performance is repeatable. Then you wait for confirmation at earnings time, whether it has an upside suprise or a disappointment, then everyone scrambles to readjust their outlooks and price targets. Earnings is apparently the number one reason for stock appreciation. Analysts themselves are generally fairly poor at determining future earnings. Hell, I got much closer than most on my Apple estimates and I had yet to learn anything about future cash flow discounting, WACC, etc... I think also some studies have shown that analyst ratings are a 50/50 shot at best, which makes me wonder what they are doing. Some of that could be political or business reasons, which obviously shouldn't factor in.

I guess the point I am trying to make is that how can a market be efficient when it is supposedly being efficient based off of speculation and incorrect information in the first place. Yes, once news comes out it is fairly quickly adjusted to, but it is adjusted to again based on speculation and the psychology of investors and traders that push stocks up or down.

Technical analysis is not without its drawbacks either however I think now more than ever it has been shown to be more useful than fundamental analysis. Someone may have sworn that GE was a steal at 18.50(which has acted as long term support so that lends support to the argument). However, the bottom line is everything is driven by supply and demand, if that level no longer holds because demand is not there then clearly people don't think it's cheap or want to buy it. Forced selling and uncertainty about earnings threw any type of speculation on future earnings and "fundamentals" out the window. In that scenario all you can do is watch price and volume movement and wait for things to stop going down. Obviously once things do stop and there seems to be price stability either people now find that stock attractive to buy or new news came out to make them buy it. Either way it doesn't matter, what does matter is that you now see the demand there.

The above example also lends credence to behavioral finance or how market psychology effects things. An efficient market would never have bubbles and subsequent bursting of those bubbles. However the fact is that there are bubbles and they overshoot on the upside just like they do on the downside. Take oil for example, it got to nearly 150, now its down at 50, it's actual fundamental supply and demand is likely around 75, but again you have speculators trying to gauge how bad the recession will be and large hedge funds that were far too leveraged and overweight oil and had to get out. The Oracle of Omaha Warren Buffet thought GS was a screaming buy at 120, he must really have liked it at 55 too. The market is driven by fear and greed and you constantly see things get mispriced because the market is either too fearful or too greedy.

The last thing I want to ponder is the matter of self fulfilling prophecies. Whether it is a GS analyst saying oil will go to 150, or a price pattern, some things just seem like they just get the market to buy into it so it happens regardless if it "should". I was told a statistic(that I need to verify) that head and shoulder patterns complete close to 90% of the time. So even if I am going only off technicals I remain curious as to why the pattern forms and why if it does form should it automatically increase as high as its pattern past the neckline? I have to guess that some of it is just because people think it should do that, it does. Same thing with fibonacci retracements, IMO they have absolutely no basis for working because you can chose a high and low wherever you want and they may or may not line up with support and resistance, but if everyone uses them, they work. My opinion is that most traders use rules and price targets and possibly the lines themselves when trading so they appear to work.

Self fulfilling prophecies are again a market behavior and could be exploited for above average returns if they work. I have to assume they are for the most part self fulfilling because I don't think that as a stock confirms a price pattern like a head and shoulders all the analysts following the company immediately agree(or just before it happens agree) that the stock is under valued by the amount the stock "Should" increase according to the pattern.

Anyways, those are my thoughts. EMH is mostly fiction in my opinion, I wish I had a true way to profit from these opinions but sadly I am sure they are nothing new. What the CFA books did show is that to consistently earn above average risk adjusted returns you just have to trade off of inside information, no big deal LOL.

Note To Self: Stay Hedged

2008-11-14T18:50:00.000-08:00

This market climate has been extremely frustrating especially when attempting to go long. Any attempt at being long recently has ended up with an exit and a loss. I was long yesterday, too much so and didn't exactly like when we were testing the lows again. The bear trap was even more concerning when we dropped below 830 on the S&p. To my credit, I did not panic out at the lows, I had the mental fortitude to hold as I noticed there was not any extensive panic selling after stop losses got triggered. It could have also been stupidity to continue holding because I would have had to exit with greater losses. But we had a very large reversal and ended way up on the day. I took that opportunity to remove a lot of my long bias and bought some calls on the ultra short russell 2000 at the end of the day because it was at support and most stocks had rallied back to resistance levels and I assumed we could have profit taking.

This proved to be a good thing because today we gave back quite a bit of the previous rally and during the whole down turn I was making money on my calls. I am still frustrated because I took my hedge off, which worked out great until the last 30 mins of the day. I can't be too upset being down 2% when the market was down 4%, however had I just held my hedge I would have ended up 3% instead of down 2. Obviously hindsight is 20/20 and even if I thought we would give back some of the come back at the end of the day I would not have predicted giving it almost all back. My guess is margin clerks and hedge fund redemptions along with most people locking in some profit before the G20 all added to the accelerated decline into the close.

My thoughts are that until we finally see some improvement in the job market and consumer data I will not be without offsetting trades. I chose the russell today because I assumed if we continued rallying today the russell would not participate as much and if we sold off the russell would sell off more, which was correct. I think the name of the game going into the new year will be to sell the rallies and always have pair trades on. Right now I have to have the mind set of just surviving and not trying to make money because a lot of people are not surviving or making money, even the professionals.

Looking ahead I think once Obama names all his players and gets into office the market will like that certainty even if his policies will be unknown. I think there could be more pain to come after looking at action in goldman sachs and citigroup over the past week. I am surprised goldman has not said anything to address the decline. So far it's looking like shorting berkshire hathaway could be a good play with GS and GE both way down haha, jk.

Historically, the upcoming week is typically bullish for stocks going into thanksgiving. I am hoping so and plan on having my bullish bias into the end of the week then lightening it up and picking up some good looking bearish setups. The action right now is just unpredictable and it is very trying.

I plan on doing somewhat of a case study of previous price action. I want to see if there is any pattern in terms of time length or percent move over the indicies, for example if during a bear market do we have 5 down days for every 2 up days, or in a bull market 3 up days for every 1 down day, etc. This could be a useful way in trying to enhance gains and pick times to add or subtract from positions. Since GE said it's dividend is safe for 09 maybe I'll just let it all sit in that until after my CFA test and sell options against it. :-)

Time to Evaluate

2008-11-05T20:14:00.001-08:00

The real test of any theory is how it holds up under scrutiny of analysis through the scientific method. In that spirit, starting from Nov 1 I will be keeping a close track record of my trades and performance to evaluate the validity of risk management and to prove to myself it is the best method in the long run. I will do this also to keep track of monthly returns. My goal is to have positive monthly returns each month.

Why start now? Partly because I believe a majority of the volatility is behind us so it will be easier to set stops and not get completely whipped around with wild swings. In the spirit of my CFA studies and good science I want to find out what my expectancy is, and how well I can do following my strict rule set. I also want to see if there is a difference in daytrading expectancy vs. intermediate term expectancy. In the long run there should be no difference however maybe my psychology is set up better to day trade, or maybe it is better to trend or swing trade or maybe not trade at all.

Expectancy = (Probability of Win * Average Win) - (Probability of Loss * Average Loss)

Let's say I only take trades with a 1:3 risk/reward ratio. If my risk is R and I plan to lose 1R to every 3R gain and I expect to be correct or take trades that help me be correct 30% of the time.

(.30*3R)-(.70*R)=.9-.7=.2

This appears to be a good trading plan because it has a positive expectancy, which means over the long term I should make money. Limiting my loss to R will likely require that I set hard stops so it is never violated. So far I have been good at using my own discipline to cut a loss during a day trade. So far on 6 futures day trades I have made $95 dollars, with 2 of those being successful. This basically supports my trading plan because I was risking less money and making less. However, it is frustrating because my first trade of the day today was a success, then the second one was not because I cut the loss. Had I held a little longer it would have been successful in hitting my profit target(same with other times). However, the amount of loss I hold through did not warrant the return. Not to mention later in the day we sold off significantly, and if that had unfolded right after I bought a future and didn't cut my loss I would have had a very large loss.

The other side of the challenge is setting a target and being patient enough to let it reach it. I bought puts on the DIA yesterday at the close because I felt the rally favored a sell the news type scenario once the president was elected. This proved to be correct, however I took my gain too early in the day and had I held till the close my gain would have been 3x larger. I did attempt to be smart, I locked in most of my current profit then let the remaining contracts go, the downtrend it was following broke so I took the remaining profit assuming a reversal. The reversal was short lived and eventually we had a large sell off into the close.

Speaking to the large picture I think we had some good profit taking due to there really being no actual resolution and no one knows what Obama will do and who he will appoint yet. Cisco reported and met expectations but had a bad outlook which will weigh on tech tomorrow(futures are down 2%), which is unfortunate because I am long Dec calls on the Q's and I suspect I'll have to sell. A further sell off though should set up some nice buying opportunities in some good names I have been wanting to get into such as VMW, AAPL, CHK.

The Jobs report could be another negative catalyst however if we are truly bull confirmed people should start dip buying on these pull backs. We should see support around the 9,000 level.

So, the name of the game now is evaluation. Is this a worthwhile cause? I will compare my results to the averages and see if my rules and timing ability is a pointless affair as most money managers claim.

We Made It!

2008-11-01T04:46:00.000-07:00

It couldn't have been more fitting that one of the scariest and worst months in stock market history ended the trading week on Halloween. Volatility has been ridiculous lately, so I have taken to using smaller and very few position sizes remaining essentially delta neutral until the market calms down, not to mention most of my time is spent studying for the CFA at the moment. I think volatility should calm down after the election so hopefully we can start some steady trends and options will be more appealing to buyers.

As of right now we seem to have put in a short term bottom at 8,000. Depending on what happens in the coming months and into next year that may not be the ultimate bottom but it seems more and more likely as we go higher from here. The NYSE bullish percent went on to a buy signal on the point and figure charts, which makes it a "bull confirmed" status, meaning bull market. This is supposedly the lowest a confirmation has ever happened at 20%, it could be a false signal but as of now until it is broken buying the dips is much more appealing and trends should hopefully last longer than a day or two.

If hedge fund and mutual fund liquidations are essentially done there will likely be a steady stream of money coming back into the market over the next few months if we don't get any unexpected surprises like a country defaulting.

I recently got approved for Forex and Futures on my new thinkorswim account which should offer some good opportunities to diversify. If europe is/will be in a recession it seems logical that they will continue to cut rates, and since the our rates can only go down another percent I think this will pressure the euro making it good to be long the dollar and buying on dips. A strong dollar will pressure crude and commodities however those have come down so hard from forced selling I think I'll wait for them to regain a correlation.

We broke above 9,250 and finished above it today pointing to higher stock prices going forward. Today was kind of funny because it was much less volatile during the day(ie normal) and seemed boring after we have had such swings all month. In the final 30 mins there was quite the battle though, in 2 mins I think the futures sold off 150 points, traded in a range then finished up back close to their highs within the last 5 mins. I took the opportunity to trade some futures today, it was slightly frustrating but highlighted the necessity of rules and risk management. 3 times in a row I took trades, with the trend and had to get back out with a loss. Then my 4th trade was profitable and made up for all my losses. I ended up making 5 dollars total in the futures haha but it shows that you can take multiple small losses and still make money. My other lesson was to take positions a little bit closer to trend lines. I would get back out when the lines were violated, but would generally see them come back and would have gone in my favor. Oh well, rules have to be followed as we can see and you can't mess around even trading single contracts due to the leverage they allow. Each trade risked about 1%.

Overall I am cautiously optimistic at least in the short term given what has been seemingly priced in. Consumer spending dropped by 3% which was huge and obviously is the main driver of GDP(which was -.03). I think a lot of the announced layoffs will hit next month which could be an issue obviously and is never a good thing in general(take it from the unemployed haha).

It looks like Obama is going to win the election, which I prefer but hope he has a good plan for creating jobs. Stimulus packages like Bush gave by giving out checks are worthless and do nothing but artificially create spending for a month. I hope that is not the same way Obama goes because it would be equally as worthless and add even more to our debt. If jobs get created then people can spend month after month(and hopefully this time save some too) imagine that!

Well, back to studying...

Volatility Remains

2008-10-14T21:09:00.000-07:00

This market remains unpredictable. A large gap open resulted in a fill and then drop of the major averages. The frustrating thing is what happened with GE just a day ago did not happen with XL capital, it bucked the whole market trend and I got out with my measily gain only to see it shoot up another 4 dollars during the day. Oh well.

I tried unsuccessfully to be the contrarian twice to the downward trend. I made money a 3rd time and got out with a quick gain but the averages rallied into the close like I was hoping. Oh well. I need to fully remove emotions out of the equation. I tried to during the day as I took a trade and just a set a limit sell order of my predicted target. The target got close but not quite there so I never got filled and took a loss on the position.

You have to act so fast in this market it's insane. The perfect put plays on POT and FSLR i was wanting to take were only at their resistance levels for the first mins then proceeded to plunge the whole day. Who would have thought with a 4% gap up on the open there would be zero significant rally attempts to take them down at their resistance levels again. All I can hope for is another rally.

I fear the market is in a middle ground area, we could go up just as easily as we could go down so I don't really want to take a directional trade beyond a day. I need to just be patient and let the setups come to me and take the ones that make the most sense.

More History Made

2008-10-13T21:06:00.000-07:00

So the rally finally came that I was expecting, although it came with even more force than I expected which caused me to leave a lot of money on the table as a result. Twice I looked for day trades to see if the rally would fade and twice I had to exit again because the trend just kept going up. History books seem to keep being written in this market. With the Dow gaining nearly 11% in the session, the second highest percent gain and the highest point gain in history.

Besides exiting my calls too soon, GE particularly pissed me off. I had my stock set to sell on the open at 22.25, it opens and 22.30 and apparently I didn't get filled because it promptly dropped and kept dropping the whole day. I ended up bailing at 21.20, so there is a 1k less gain on that trade. I did however buy back the puts I sold at .85 for .15 so I made 700 there, not too shabby. It is likely I could have collected the entire 850 but in this market I didn't want to risk it.

My target of 9500 was essentially reached today. I was hoping for a pause at 9000, then a resume on good confirmation of libor rates going down. As of right now it looks like the rally is set to continue with futures up 2%. I am upset I bailed out and missed that extra 500 dow points obviously, but the easier trades will come on the way back down and I won't chase the trend beyond some possible day trades. when we get near 10,000 I will put on a put position. Stocks in the ag and materials sector should also be close to some good resistance and ready to get some puts as well.

My only position at the moment is some stock in XL Capital. They report earnings tomorrow morning before the open so this is partially a gamble. However they are trading at 1/3 of supposed book value so if earnings and guidance is remotely decent we could see a pop. If not, then I shouldn't have too much downside risk. It did run up into earnings so that is a partial concern that it will sell on the news, but again it should be limited risk.

I may look to exploit these high volatility numbers with more option selling if we have a rally tomorrow and reach close to 10,000.

My general feeling is we see 10,000 then as earnings start to come out and are worse than expected and guidance gets cut we will see a lot if not all of this rally come off over the next couple weeks. Then there will be focus on the usual things like consumer spending. If the market is not doing well I don't see a good christmas but if it holds up going into the holiday season I have faith in people to keep spending money they don't have if they are employed.

I will let the chart show the way but these are annoying times to be an option buyer with such inflated prices but I am hoping the vix comes down significantly soon and we start to have more well defined trends we can follow.

The Crash of 2008

2008-10-11T16:16:00.000-07:00

It's interesting to think these really are historic times. People will look back and reference this as the "crash of '08" just like people talk about the '87 crash. October seems to be the month for events to unfold historically and this time around it is no different. With the Dow 40% off it's highs from almost exactly a year ago it seems eerily coincidental.

I have been trying to do some research on previous bear markets and crashes to help me gain an edge going forward. I feel like this is a great opportunity to make money on a snap back rally since we are so significantly oversold. Friday was slightly encouraging as we rallied from 670 down to settle only down 128. This could have been because people did not want to be short before the G7 meeting over the weekend but it seemed fairly positive since more forced selling didn't come at 2:30 or was at least overcome by more buying into the close.

Looking at the dot com crash, it basically took 2 years and had 4 steps on the way down to retracing from 1500 down to 800 on the S&P 500. This time around it has taken only a year but still took 4 steps to retrace 1550 to 800. The month following retracement there has a been about a 10% move back up in the opposite direction. The fact that this move has happened so quickly and gone so far means there should be a massive rally around the corner, likely sparked by a government move. I personally think that the government should guarantee interbank lending, that would spark a huge rally, but at this time all they are saying they'll do will be to invest in banks directly which may not do much to inspire confidence.

Comparing the previous declines as well each time it reached a -70 oversold condition there was a rally generally for the next week or 2, we have reached that condition, as well as historic oversold conditions on the McClellan Oscillator and bullish percent index. Even with the late day rally the McClellan is at a -120 level up from -130.

The factor just comes down to time and with the Vix at all time highs it makes options trading very hard. I still bought some November calls on the DIA with the expectation that we see a 10% move in the next couple weeks which should offset any volatility and time decay enough to get a nice profit.

GE reported earnings which were in line and affirmed outlook for the year. This would have normally be big news but seemed to be ignored. I took a stock position in GE at 18.50 which has been a significant support level over the last 10 years. It also coincided with an oversold level which was ideal. Right now after hours it hit 21.50, if we see a rally I think it could see another 10% pop. My first target is 22.50 with a second target of 24. At the same time I sold an Oct 17.50 put since we will have time decay over the weekend and doubt it will finish in the money at all by friday, but who knows anything is possible. I think odds are in my favor which is why I took the trade. Waiting a week and hopefully getting 800 for it is an ideal situation but still makes me a bit uneasy having an uncovered put position. I could have done a covered call but I expect the move to be up so that seemed to not be a good play.

I think the Dow could get back to 10,000 in short order once we see some credit relief but I think 9,500 is a more realistic target.

Who knows if we saw a bottom, but lets hope history repeats itself again and it is profitable. :-)

History in the Making

2008-09-29T20:57:00.000-07:00

Today the Dow saw a 777 point decline, the largest point decline in history after the congress failed to pass a bill that was essentially "guaranteed" to pass and help attempt to stabilize markets and quell fears in the market. On a further note the Nasdaq saw over a 9% decline down 199 points, which I was unfortunately long the Q's but got out well before the lows.

Everyone in the industry from pundits to professional traders seem to say this is the worst market they have ever seen and that these are "unprecedented times". Unprecedented times indeed. This has been a trying time for myself as a trader still trying to learn as well as try and balance studying for my CFA level 1 test. In hindsight, the best thing to do would have been to sit out this time and let things settle out. As Jeff says, "everyone in a bear market loses, it just depends on how much." Still, there have been many valuable lessons learned in this market and I have managed to at least survive. I am determined more than ever to succeed especially knowing that easier market times are around the corner. That is not to say I think this bill is going to solve all the problems of the market, however the market operates on group think psychology that needs to be calmed. People need to gain confidence in US markets again.

There are some things to know coming out of this that I will be watching and looking to invest in going forward once we have some more certainty and resolution that the market seems to look for as evidenced by the stock market but more so by the credit markets. Those banks that come out of this successfully will be in great positions, US Bancorp, WellsFargo, Bank of America, JP Morgan and now Citigroup with its aquisition of Wachovia. These will be the leading banks and essentially the only major banks going forward that should see some significant growth. Goldman Sachs can never be counted out as well with their change over to a bank holding company. So, in the short term those select financial stocks could see some decent upside. My other sector is the homebuilders. The homebuilders have held up fairly well in the face of the sell off and once this bill eventually passes, which I think will happen, they will benefit. The XHB is a diversified way to get in here, or you can choose individual stocks such as Meritage homes or Centex.

I am cautious on getting into anything consumer related that isn't something like the consumer staple stocks. The global slowdown is still very much a factor in this market even with a bailout however it will make some very good companies going forward very attractive if you are looking to hold long term such as AAPL.

The last aspect that we learn from today and that I learned again is that nothing is ever a certainty and we cannot rely on politicians. This bill was basically supposed to be passed and everything indicated that it would pass, which I took as a bullish sign for stocks. I was overly long going into this so I suffered and gave up all previous gains I had and they turned into significant losses. This is obviously a big lesson to learn even though this is not a usual market action of losing 7% it would have been smart to lighten positions going into the weekend because you truly never know what will happen and how slimy politicians will try to cling to their positions and not stick their neck out because they want to keep their position of power.

Long story short, I found it somewhat amusing to observe action today and have been a part of history. I will live to trade and invest another day and will move forward with more insight and caution and more reinforcement of following rules.

Day Trading to Stay Green

2008-07-17T16:18:00.000-07:00

So a lot has happened since I have posted last. The S&P touched 1200 since I last posted and highlighted the break of 1300. Oil traded up to within 1 dollar of 150, and has since toppled nearly 25 dollars. I unfortunately did not take my bearish stance as planned beyond a short term trade that I was early in and ended up exiting for a loss, but would have returned nearly 700% (I had an average cost of of about 1.50 and it is now worth nearly 10 dollars).

Can't look back, have to look forward. Recently I had calls on GS, which has gone up 20 dollars in 2 days. I was only along for the ride the first day, I left a few contracts to go to today but sold at the open and still left quite a bit on the table, but oh well I still made a good profit. That all important line of 180 was reached and I was not convinced this was a rational rally that could be supported(read there was not enough economic evidence to break above that resistance). So I bought puts assuming we go back down if any financials are inline with write downs or have unknown issues. I am down on my puts but it should play out as it looks like an ugly day tomorrow.

I day traded puts 3 times on GS with all of them being successful, i would enter at 180 and exit as it bounced down, one time I came back and it was above to 184 and I figured we would have a sell off back to 180, so I took a ride down again. All times I entered, set my target and set a limit order and walked away. Once I only got filled on 5 of the 20 contracts so I had to sell the rest for only a small gain. These trades were the only reason I was up today, as my AAPL calls barely participated in the rally then sold off at the end to be even.

GOOG missed as well as MSFT so I fear the worst for apple tomorrow. Both were down 6% afterhours, Apple is down as well.

I am hoping the money I gain back from my GS puts will help offset my loss from AAPL. I plan to do some day trading again tomorrow likely on GOOG, possibly GS, or AAPL. I think it could be an ugly down day so that will be the way I play it with puts unless I see otherwise.

Hiatus

2008-06-26T08:00:00.000-07:00

Well I haven't had much activity lately. The reason is I have been busy and I have been letting things pan out in the market. Currently things are not looking too good if you are bullish. S&P is cracking below 1300 levels and oil is close to that 140 level.

I am sitting back as I am helping my GF move and am out of town, I'll be back watching things and trading more in July after the 4th. Unless there is something very compelling.

Levels to watch is 150 for oil, if we hit 150 I am taking a contrarian viewpoint and buying puts on oil and buying stocks because I think that could signal a bottom, who knows my view could change as it approaches but I think all this is result to oil pressuring inflation as well as commodities due to a weak dollar. The psychological level of 150 in oil could be the top and then we see it drift lower, which will then possibly be followed by commodities and allow the fed to raise rates as inflation gets under control so the dollar strengthens and oil and commodities continue to go down and we see a gradual recovery.

I'll continue watching and start trading once I get a consistent internet connection and time to watch, I may take some more day trades to see how that goes as well. stay tuned!

The One That Got Away

2008-06-16T21:57:00.000-07:00

Today, Lehman reported and came in with the loss they had previously announced, which was apparently positive for them and the rest of the financials. GS reports Tuesday and if it also has a good report I think there could be an ease in the credit fears and the market could move back higher. GS actually broke and finished above 180, which would have signaled me to get long some calls but with earnings coming I don't want to gamble since I am currently down. I was positioned bearish ahead of LEH's report on LEH, GS and MS. All had rallied recently and I thought if there was any kind of news not already out it could take them back down. That did not happen and I cut my losses shortly after the open. This proved to be very smart because GS then moved up 7 points after at its peak and both MS and LEH moved 4%+ on the day which would have killed my calls.

The largest disappointment was missing the trade on AAPL, and when I say missing I mean I took the trade but didn't get filled. My bid was 1.75 and AAPL was following a nice trendline and I assumed a retest and I would have gotten filled, but no the ask was 1.78 and it then broke out. My order was for 25 contracts. The stock moved and I assumed if we could break above the previous close we could get to 175, which was precisely what happened(actually closed above 176), so my option when I checked it again was worth 4.65. Had I paid up an extra 3 cents I could have been up an extra 7k in a single day and trade without having risked more than 2%. The frustrating thing is more so missing the extra capital, had I made 7k I could take 14 more losses before I was back to where I started and in that time I should hit one or two more big trades like that. The comment was made that "those things happen every day" meaning the stocks move like that every day, which is true but the likelihood of me getting in like I could have and getting a return like that does not happen every day. Who knows, maybe it could happen again tomorrow and I am in the trade, however the odds are not in my favor. Speaking of which I have to work tomorrow for most of the day so I probably won't be in any trade.

I have to look forward, that sucked and I am sure it will happen again but I am glad I cut my losses, that is half of it. The other half is taking advantage of those large winners and being along for the ride.

Ping Pong Game

2008-06-12T22:30:00.000-07:00

So Tuesday I entered into two call positions after selling out of my AAPL position and all other losing positions. I bought calls on CLB that had a break out and then a pull back, as well as FCX that had a bull flag breakout. The next day on a large market down day they were showing me nice gains, today they give it all back. FCX broke below support and I sold out, as I should have. CLB is still a small loss but still held above support.

Today I was planning to buy puts on the indicies at the close, unfortunately I should have done it mid day at resistance because it turned over and headed back down. If we see any strength tomorrow I will likely get into some puts.

This week was a lesson in cutting losses, because had I not, I would be hurting way worse than taking my small losses. I considered AAPL puts just because there seemed to be a concern about Steve Jobs, and I think if it comes out that Steve Jobs is in fact having a cancer recurrence, which would be terrible for him, the stock could easily lose 20% of it's value. I am thinking of looking for an opportunity to get some puts if AAPL comes back a bit after this large drop. With the prospect of Jobs' illness and the apparent market headwinds I think AAPL is temporarily done going up.

I again tried to get some put plays on both GS and MS as they rallied today, missed my fill on GS by .05, same on MS, both I assumed would rally slightly more, i'd get filled and be good, but that did not happen and the stocks sold off. It's hard to look at that, I sometimes will just pay the ask to get in, and I have good conviction, but of course the cheaper I can get it, the more of a gain I can start with or the less of a loss I can take to find out if I am wrong.

It's scenarios like this where I'll have a big up day then it reverses the next day that really tests my patience and ideas that staying with the trend till the end is the best thing. Of course having more plays to balance myself would have helped in the overall picture, individually I stuck with these till they did not work, again as I should do.

I have to work tomorrow so I don't think I'll be able to do much, but I'll keep an eye on things.

Best thing(and off topic), Celtics come from 21 points down to beat the Lakers and take a 3-1 lead in the NBA finals. The series would be over next game if the league didn't switch to this stupid 2-3-2 rule however I am hoping KG and the Celtics can come up with another win on the road and clinch it.

Apple Bites Back

2008-06-09T22:20:00.000-07:00

So for better or worse the main theme of today was AAPL. With the WWDC today and announcement of the 3G iphone and many other critical business components I felt like the volatility could be exploited.

I entered the trade when I saw it break out of a range to the upside above 182, in general my bias was long, I thought today would be an up day overall after the speech was done. So with that break I entered into 25 contracts of the June 195's. The delta was approximately .25, I felt with good news the stock could easily be propelled up to the old resistance level of 190 and if it broke we could see 192-195. Initially the trade was doing fine, the option value increased .20 giving me a nice cushion, the stock came back down and found support at the 182 level that I had entered. This held for a while then started to break down as the speech approached. I had a limit sell order on the long side but not on the down side, however I wanted my downside risk to still only be 2%, in this case that meant .2o of loss. I entered at 2.40 so that would be an exit of 2.20.

The stock essentially plummeted down to 175 for no reason just as the speech was starting and I was unable to do anything as I was going to class. At that point I was faced with a decision, do I sell out, average down or do nothing. My inclination was to average down since I knew this was likely unsustainable making a break even only require only half the movement back or even better a profit possible after a large initial loss. I decided to do nothing because I didn't want to compound my loss. I decided to wait it out and ended up setting a sell limit at 2.20 equaling my desired 2% because at that point it was looking like I would be lucky to get out with that small loss. At one point it got back to my 2.40 price but I had already been filled, of course I never could have known it would get there.

In the end, I got filled and was actually lucky to get out with that loss. Had I continued to hold till the end of the day I would have lost 10% of my account instead of only 2%. Remember we have to survive to trade another day so while I am partially upset I didn't take advantage of the initial exaggerated weakness in the stock, it would have likely been more wreckless to average down and holding would have put me in a weaker position to trade with in the future.

The nasdaq was down significantly today, which was great because all my tickers were 4 letters and calls(stupid). My hope was to get weak stocks to rally to buy puts, which unfortunately did not happen. It is stupid to look back and say "should have" but holding all my positions from last week to today would have been the best move yet and I would have had another very profitable day. The reality is that I didn't have them so I must say "oh well" move on and look to balance myself and get back the losses of today.

Theory vs. Practice

2008-06-07T23:38:00.000-07:00

So Friday we saw the Dow lose almost 400 points and the S&P lose 43 points. We gave up the gains from thursday and even more because of exactly the reasons highlighted: bad unemployment and oil. Unemployment came in much higher than forecast and oil has it's largest single day increase evAr(that's right with a capital A).

This is EXACTLY the reason we diversify and what was the result on friday? I had an up day that pushed me back over even and would have put me way above had I not let emotions get the best of me. Thursday I was questioning why I wasn't in all calls(just to make a point). This is the reason. ANF reversed as well as MS, my SPY puts at the close seemed like I had a crystal ball. I don't I was simply making a hedge that happened to work very well and had it not worked I would have exited with my small loss.

This was basically the perfect scenario I have looked for. On a large down day my puts go way down and my calls stay flat or increase. My IPI and AKS calls were actually making money, AAPL was hanging in there until close and GRMN was holding support. I checked the market in the morning, knew I was properly diversified and position sized and decided to go back to sleep and let the market do what it was going to. I came back around 11 and checked to find myself back above even by 2%. In this case, excitement got the best of me. I basically took profits on my positions because the S&P was sitting at 1375 and seemed to be holding that old support level so I assumed I made my money on my puts and wanted to finish above even mainly for psychological well being. No harm in taking a profit however, it severly limited them. Had a held till close I would have been up another 10% on my account. There is no way I could know this of course but patience would have paid off big time.

In the end, I can't complain being up 8% when the broad markets were down 3%! That is how it should work. On monday I'll look to balance myself again as I am now left with only call positions. AAPL has their WWDC so I am hoping for good news and bullish action. GRMN held and bounced off support at 50 so I am still in that trade. I entered some ISRG calls at the close since it was holding support at 280. My target is 300 or a break of 280.

IF we get a bounce on monday I'll look to enter more put positions since the rally will not hold unless we see something drastic. I'll look to enter puts regardless but I want to find good enteries.