In my last Seeking Alpha article, I discussed the psychological battle brewing within me. Simply put, I called two of 2011's biggest shorts, yet failed to profit from them in any meaningful way. Depending on how I run the numbers, I missed out on gains ranging from $100,000 to upwards of $250,000.
In that article, I included part of a message from fellow Seeking Alpha contributor and Paid2Trade.com's Robert Weinstein in which he warned against falling victim to the potentially fruitless search for the "winner's high." In a nutshell, Robert urged me not to haphazardly enter into trades seeking to win what I thought I should have won in the aforementioned missed opportunity.
Let me be straight-up honest with you here - fighting this regret and the urge to seek and realize redemption is one of the toughest battles I have ever fought. I feel pretty confident that I will stick to the decision I have made to play it safe and not risk trying to replicate the magic with real money. I think it would be incredibly dangerous for me to do otherwise, given the winning streak I have been on and the reality that it has to end soon. The last thing I want to do is risk existing core positions and other nest eggs to redeem myself.
That said, I intend to move forward doing what I do best - torture myself further. I will use the capital from my recently-closed Netflix (NFLX) put position to follow three of the plays I have the most conviction in. And, for the record, I will put these trades on - in the same or similar form - with real money, but only a fraction of the $10,320 in cash held in the $10,000 portfolio.
Before I get to the new trades, let's update the status of the current ones, as of roughly 12:40 p.m. Thursday.
|Option||Quantity||Entry Price||Midpoint Price, Thursday Intraday||Profit/Loss|
|Apple (AAPL) April 2012 $450 call||1||$19.18||$19.03||- $15|
|Amazon.com (AMZN) April 2012 $220 call||1||$30.00||$16.63||- $1,337|
|Research in Motion (RIMM) March 2012 $20 put||15||$2.50||$2.90||+ $600|
|Sirius XM (SIRI) March 2012 $3 put||25||$1.58||$1.21||- $925|
|PowerShares QQQ ETF Trust (QQQ) March 2012 $50 call||1||$6.68||$9.80||+ $312|
|TOTAL P/L||- $1,365|
The first move actually reaffirms my RIMM bearishness. I am adding 15 more contracts to my position in RIMM March 2012 $20 puts, bringing my cost basis to $2.70 per contract. That trade costs $4,350 to put on, bringing the $10,000 portfolio's cash balance to $5,970.
The second move reiterates my belief that NFLX will continue to implode as the losses rack up on 2012. If you need further support for that contention, just read fellow Seeking Alpha contributor Slim Shady's near-perfect (because nothing is really ever perfect) response to Whitney Tilson's buddy-buddy move with Netflix CEO Reed Hastings. Anyhow I am doing something similar to what I clearly should have done earlier this year. I am buying 8 NFLX June 2012 $50 puts for $4.50 each. That position costs $3,600, bringing the $10,000 portfolio's cash balance to $2,370.
With the remaining cash, I am playing my bullishness in Pandora (P). In "real life," I have been dollar-cost-averaging into the stock. I truly believe investing in Pandora today represents getting in at the beginning of a massive opportunity. It's a long-term play for me. Pandora is on a faster path to profitability than most of its bears give it credit for. Mark my words.
Generally, I would not dabble too heavily in such thinly-traded options, but given the cash I have to play with in this portfolio, I will take the chance. If P soars like I think it will in the next 3-6 months, the options will attract some volume. The biggest risk here, given the long-term nature of my sentiment, is that the stock does not move fast enough. What I think will happen near-term, however, is that the company's next report or two will prompt investors to ramp up what we're seeing now - sustained buying of the stock.
That said, the third move puts me into 9 P June 2012 $15 calls for $2.55 each (I am using the ask price here, not the midpoint, to be fair given the wide spread). That trade sets the $10,000 portfolio back $2,295, bringing the cash balance down to $75.
Add it all up and the value of the $10,000 portfolio stands at $22,241, still a relatively comfortable double.
Of course, for the rationale that supports my positions in RIMM, NFLX and P, all you need to do is search my rather lengthy Seeking Alpha article history on each name.
One way or another this exercise should prove worthy. Part of me hopes each of three positions go down in flames (not really!), as that would save me from beating myself up all over again. In any case, I feel strongly about all three and, if nothing else, pending earnings reports from Sirius XM (November 1st) and RIM (December 15th, unconfirmed) will make things all the more interesting.
If nothing else, I've learned a lot about trading, investing and myself since I started contributing to Seeking Alpha. Not the least of which is that there's a big distinction between trading your conviction in a simulated versus real-life portfolio. Despite the internal pain it can bring, I think most traders and investors would benefit from starting out - for a long time - with the former, while easing into the latter. That internal pain could just easily be pain to your bank accounts.
Additional disclosure: I am long P. I dollar-cost-average into the common stock on a weekly basis and intend to do so for the long-term.