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Gosh I hope that was the Bottom!

We pursued a very aggressive strategy, buying out our callers, many of whom we only just sold on Thursday or Friday but I felt strongly about my thesis that GS had attacked the markets in order to knock us out of positions ahead of a Fed minute (or whatever) rally tomorrow.

It was very hard to stick to our guns but my strategy comment to members at 11:22 was:

  • This is gut check time for traders guys. Now is the time to take out callers that you’ve gotten a quick 30% from and take a chance before you roll down and sell the next level. This is my range so I’m taking out pretty much anyone I have a good advantage over with 20% (of the profit) upside stops so if I have, for example, my SHLD Dec $125 caller (SHLD was 1/2 covered) where I’m up $3 on him at $4.20, I set a stop on him at $4.80 which runs down with his price and he comes off the table on a reverse.
  • If it’s a head fake, the fact that I suddenly see a naked SHLD Jan $130 is a signal to me that it’s time to roll that position down anyway (or give up, depending on my feeling at the time). As it stands, the caller has that 1/2 of the trade 100% covered so I’m not worried but that’s no reason not to take him out.
  • That’s they way you have to play a drop like this as this is your BEST opportunity to make money IF it turns and, if it doesn’t - just get back to cash and be patient.

Boy did we have to be patient as the Dow gave up another 50 points by the day’s end but we were buying while everyone else was selling, even making aggressive moves in our smaller portfolios and building our Applefly positions on the call side (we tightened the existing $180s to $175s if you are playing along at home) and my closing comment (3:52) was: "This was actually a nice bottoming move today. I would have preferred to have held 13,000 but it’s all up to the earners now."

We hung tough all day. As Shakespeare’s Bottom said: "I see their knavery: this is to make an ass of me; to fright me, if they could. But I will not stir from this place, do what they can: I will walk up and down here, and I will sing, that they shall hear I am not afraid."

It is very hard to go against the crowd when the crowd is running screaming for the exits but that’s entirely the point of what we do here. We are not knee-jerk contrarians, our goal is to make a good assessment of the markets and filter out the BS that pounds us day in and day out from the Mainstream Media, attempting to separate fact from fiction so we can make proper decisions. Sometimes we are wrong, and sometimes we are right but when we balance our portfolios and use good cash management strategies then, like Mae West, we can say: When we’re good, we’re very good - But when we’re bad, we’re even better!

If we enter our positions for good reasons and hedge properly and give ourselves adequate length in the contracts, then we welcome a bad turn - it’s our opportunity to add to our position, either by adding more calls or rolling to a position that we considered too expensive when we first entered the trade. While we do run the danger of making asses of ourselves, throwing good money after bad, we also have the confidence that we know how to roll out of a losing position and the discipline to know when a trade is truly dead.

They were selling Google (NASDAQ:GOOG)for $620 yesterday. $620 for a company that makes $15 a share and is growing at 35% annually! $620 for a stock that was $740 12 days ago and $620 for a company that is about to add the 700Mhz wireless spectrum to their already impressive portfolio of dark fiber bandwidth - two potential long-term revenue streams that aren’t even imagined in future projections.

We are long and strong in Google and this afternoon we took out our short callers and let it run naked. Mae West would be proud!

Source: Monday Wrap Up