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Lessons From First Year Trading & 2013 Trading Strategy

|Includes:AIG, Amarin Corporation PLC (AMRN), AVEO, CLSN, EXEL, IPXL, NAVB, RPTP, SRPT, ZIOP

I traded my first ever stock last August while on holiday in France. I bought Navidea (NYSEMKT:NAVB), followed shortly by Amarin (NASDAQ:AMRN) and AIG (NYSE:AIG). I had studied Finance and Political Science in college, sitting my finals the previous May and it was high time I felt to put the theory I'd learned, into practice.

Aware that the biotech industry saw much greater movements in its share prices compared to other sectors and that my initial trading capital of $900 ($200 in each position) wasn't going to go anywhere without some volatile swings, the decision was made to invest in biotech companies, with short to medium term catalysts approaching. AIG was bought on the premise that it was viewed by the experts and those with more experience than me as a very undervalued large cap, that was in a good position for a move of up to 50% in 2013. NAVB had LymphoSeek data approaching and speculation regarding a buyout of AMRN was at fever pitch. And so my portfolio was born.

5 months on, I can honestly say I've learned more in those months trading my own money that I did in 4 years of college lectures and tutorials. I've seen my capital swell to $1600 (+45%) and fall below $600 (-33%). I was lucky enough to buy Sarepta (NASDAQ:SRPT) two days before their 48wk data on Eteplirsen was released and stupid enough to set up option trades like strangles on Exelixis when I had no idea what I was doing. One of my more idiotic trades was going in heavy into Vringo (VRNG) close to its 52wk high in the midst of its intellectual property trial with Google (NASDAQ:GOOG).

I've looked from the sidelines as Celsion (NASDAQ:CLSN) tripled and continue to be amazed that pure speculation on a stock like that can make people fortunes so easily.

Going into 2013 a wiser man (I hope), I have endeavored to formulate some trading rules and do my upmost to stick to them. At times when I look at the movements that occur in biotech stocks, I can't help but feel like a dog who's had a hundred tennis balls released around him and is going bananas trying to catch them all. For this reason, it's time I copped on and got serious about making some money, because if the last 5 months have taught me nothing else but this, it's that there is money to be made, and lots of it.

Rules and facts to check:

  • Vicinity of stock to 52wk high/low.
  • When and what is the next catalyst (must be close to 3 months)?
  • Has volume increased yet with approach of the catalyst?
  • How does the 10 day EMA chart look?
  • Level of insider sales/purchases over the last 12 months.
  • Sell before the event. Take profit.

While these factors may seem trivial and come natural to more seasoned traders, they're the first of what I hope to be many trading rules that I develop that give me a better view of the stock I'm looking at, and not be buying on a whim or because someone else is advocating it. And the important thing to do is to stick to them. I am slowly but surely learning that this is a long game, that there will always be opportunities especially in the biotech industry to catch a run, and that missing one today or tomorrow, isn't that big a deal.

I'm trying to delve into the world of options in order to get more leverage with my trades and make each one count more. Trading options has been a harsh lesson but that's the name of the game. I was holding Raptor (NASDAQ:RPTP) Feb calls on Christmas Eve when the company announced the delay in FDA review until April. I took a 80% hit when I panicked and sold like a novice, when if I'd thought about it logically and objectively, and held, I could have exited 2 weeks later almost at break even.

In contrast I was 80% down in an unrealised loss with Impax Laboratories (NASDAQ:IPXL) Jan options 2 weeks from expiry and had a GTC order in to sell at my break even price. On the 9th of Jan they unexpectedly (and temporarily) rallied 135% and I got out with no damage but a hell of a lot of experience. Patience and commitment to the theory and belief behind your trade are absolutely essential.

Currently my portfolio is:

Long SRPT stock

Long AVEO Feb $7.50 calls

Long ZIOP Apr $4 calls

Going into 2013, I hope to update this blog pretty regularly, at the very least with each trade I make, and my reasoning behind it. If nothing else it'll serve as a journal and also keep me focused on playing the game and not sitting back and just watching.

Disclosure: I am long SRPT, ZIOP, AVEO.