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South Side Book Review: Stick to Your Guns

Not a bad day for the South Side book which closed up $7,000 with the market down 80 basis points.  The outperformance in our portfolio can be attributed to several key factors.  First, we decided to short an additional $1.4mm in the overnight session to hedge against market risk.  This proved to be a critical move as the futures sold off in the hours preceding the market open, allowing us to cover around S4 at 1174.75.  Next, we saw certain names in our portfolio outperform the market such as OPEN and TGT.  The day was hallmarked by strong stocks continue to rally throughout the session as money rotated out of laggards, most notably Bank of America.  Finally, we held a relatively large portfolio into the last hour of the day, expecting to see an asset allocation rally take hold.  Unfortunately, this never materialized as the futures dropped approximately 4 handles in the last half hour.  Although we gave back a sizable portion of our positive P&L, I learned that you have to be willing to take a bet when operating from a position of strength.  Had the market rallied as we expected, we would have been perfectly positioned to greatly increase our profits.  The lesson of the day is to stick to the plan you believe in, understand all of the risks, and always have a contingency plan prepared if your trade fails to materialize.

Disclosure: none.