Current Status

Well, I've had some losers lately, not a good start to this blog. But, by seeing my early losses on this blog you will gain some good knowledge on what NOT to do. Please learn from my mistakes and save your money.

I've got a trip planned for the middle of December, basically options expiration week. So, I'm not putting on any new trades until I get back (remember the PALM lesson). Until then I will be doing some backtesting, cleaning up some charts, polishing up my trading plan and getting ready to punish the market in 2010.

The only trade I have on is FAST. I will close out this trade before I leave for my trip. Once I get back, then I'll probably need to do a little more work to turn this from a losing trade to a winning trade.

If you are not going out of town and can watch the market during the holidays then try to put on some nice out of the money credit spreads. The WONDERFUL part about the holidays in the market is THETA. There's tons of it because of all the days the market is closed around the holidays.

One last item to remember about the holidays - the market generally does not move much, it just kinda drifts sideways and up. So, focus on some Bull Put Credit Spreads.

Update - PALM

PALM - what can I say. I took a trade that I normally would not have taken, and the market taught me a valuable lesson.

Lesson: ONLY trade your original plan - otherwise, the market could get the advantage.

Here's the chart on PALM:

Okay - so you know what happened from the last update on this one (November 9th update). To quickly recap, PALM was forming a pennant pattern (which is bullish), HUGE insider buying took place, and I THOUGHT this was going to be a quick and easy play - wrong.

I rolled this thing out once where the 2nd blue box is located. I had an out of town emergency which took me away from my trading and as Murphy's Law would have it, the stock went drastically against me.

I held onto this spread because I thought there was a possibility of a nice pop back up. I needed it to go back up at least to the mid $15 range. There was some news out about a possible takeover of PALM, which would have helped this happen. But, nothing did happen and if I didn't buy this spread back before the November option's expiration on November 20th, then I would have been "put" 100 shares of PALM at $16, when it's value was $11.74. Not good.

So, I bought it back for $0.96.

Let's go over the whole enchilada to determine my profit/loss:

My October trade was a loss of $0.44

I rolled out and sold the November trade for $0.40

I bought back the November trade on 11/17 for $0.96

So, my NET loss is $1.00

I know in my last post on this I said I was going to work on turning this into a winner by working on it. I could still do this, however as the famous Kenny Rogers once sang, "...you gotta know when to hold 'em, know when to fold 'em, know when to walk away, and know when to run..." In my case, I'm walking away.

I'm walking away because, YES I could turn this around for a profit BUT it would take a few months and I believe that due to the lost opportunity cost I would theoretically lose more by tying that margin up rather than finding better trades.

Remember: when you sell spreads, your broker will keep part of your account in margin and you cannot use that margin for any other trades. I don't want to tie my margin up with this trade. I'd rather take my loss, learn my lessons, and move on.

Lessons:

1. Do NOT deviate from your trading plan. Hunches, guesses, and gut feelings are best left for Las Vegas. We are doing this as a livelihood and it's a business. We put as much advantage in our corner as possible, anything less is being foolish.

2. Once a pattern is broken (this example it broke it's bottom support - blue line) then GET OUT. You can always re-enter once you figure out what's going on to correct the trade.

3. If you are going out of town - planned or not - then close your trades out.

Update - FAST trade

On 11/17/09, just 3 days before the November options expiration, I sold the long November 35 Put Option I had on FAST for $0.05.

The stock price wasn't going anywhere but sideways and I decided to get whatever I could at this point.

My Net Loss so far is now $1.88 after selling back this option to the market. I'll continue working this stock to correct it.

Update - FAST trade

I've done a couple of things in FAST recently to start fixing it. Here's the chart - it has a ridiculous amount of stuff on it:

Let's start with a quick recap before going to what I have done recently. I originally was bullish on this stock and placed a November 40/35 Bull Put Credit Spread on 10/15/09, which I received $1.47 for. This is represented by the blue box.

I had an out of town emergency and basically could not get to the stocks for about a week. Ironically enough, this was when the market really started dropping. Murphy's Law.

I figured there would be a support level around the $34.50 mark since that was the last low in this general area back on 9/2/09. So, I just waited to see how it would react to it before taking any action.

We bounced back up to approx $37.50 where we found some sellers (resistance). You can't see it on the chart, but this lines up with the 50 day moving average just above it helping to act as resistance.

On 11/12/09, the second to last candle on the chart (it's a black candle), we started rolling down from that $37.50 resistance. On that date I bought back the short November 40 put for $3.40.

At that point my profit and loss looked like this:

10/15: $1.47 credit

11/12: $3.40 debit

NET = $1.93 debit (i.e. LOSS)

Then today, 11/13/09, I decided to put on a Bear Call Credit Spread. I sold the January 40 call and bought the January 45 call, which brought me in a credit of $0.65.

I'm thinking that we go back down from here. When we do, I'll look for this spread to lose money and will buy it back for a cheaper price.

I definitely have a couple of months worth of work here to get back to positive territory, so FAST will be with me for awhile. However, this will be a great learning lesson on how to correct trades.

Update - SMH trade

I closed out the SMH trade on 11/12. Here's the chart:

SMH had a nice bounce back up. I decided to close this position by buying back the credit spread on 11/12 for $0.27 (the blue box furthest to the right on the chart). The price was coming back up to the heavy resistance and I didn't want to take any chances for the stock to bounce back down from that - especially since we are running out of time for this November expiration trade.

So, I closed out buying back for $0.27 and originally sold the spread for $0.35. Therefore I made $0.08 on the trade.

Again, this was not a trade that is going to make me rich. But, I also did not take a loss on it.

I'm feeling very good now that out of all the trades that originally went against me, I only have 2 left open to fix. Things could be a ton worse.

Updates - PALM, FAST, SMH

Let's look at some charts:

PALM:

Well, so far I have gotten my you-know-what handed to me on this one. That pennant formation did not pan out and apparently those insider buyers are losing big time. Again, I was away and couldn't trade. But if I could have traded, I would have probably gotten out and fixed the trade once the pennant was broken to the downside and we had those few days of sideways action.

No use crying over spilled milk. From here I MUST buy back this trade before November expiration and take my lumps (unless some amazing happens and we get back above $16.

I'm going to wait and see what direction we go from here as we're sideways again. The markets moved up well today so maybe they can pull this one up. Either way, I'm going to just plan on extending this trade out a bit to turn it into a winner (or much less of a loser).

Next is FAST:

I'm feeling fairly good about this one. It's moving back up nicely and I don't see any real need for action right now. Just going to take it day by day for now. Not really worried.

Now onto SMH:

I feel fairly decent about this one as well. We're getting close to where I sold the spread. The only little nasty is that 50 day moving average that we're hitting our head on today. The stochastics is high (could be bad for us), but the MACD is low and rolling up (could be good for us). So the indicators are a tad mixed.

Again, no worries, just going to take this one day by day.

At this point, we're all caught back up. I'll take things day by day and look to take profits or put on new trades accordingly. Even thought the market went against me, I do believe that I'll still come out on top.

Update - WYNN trade

Today I did some work on WYNN, first let's look at the chart:

Yes, my charts are just getting busy - you'll have to look closely.

Here's what's happened up UNTIL today:

1. Had an October trade and ended up with a net of NEGATIVE $0.90

2. Fixed that trade on 10/15 by selling a Nov. 60/55 Bull Put Spread that gave me a credit of $1.65

Okay, so as you know you really don't keep that entire credit that you sold until you close it out for $0.00. That rarely will happen with me. My main goal is to a position where I can buy back the Nov. 60/55 spread for approx $.65 or so. This would put that trade's NET at POSITIVE $1.00.

I would have taken that POSITIVE $1.00 and it would have offset the NEGATIVE $0.90 giving me a NET POSITIVE of $0.10. Not a ton of money - won't buy me many Bentleys but it will have turned my losing trade into a winning trade (no matter how small of a winner).

If you can't get a winning trade, then your second objective is to work on it and make the overall net loss as small as possible. Capital Preservation needs to rank very high on your trading objectives.

Now onto today - look at the most recent (far right side) blue box on the chart, which was today where I did a little work on the trade.

As you can tell from the last time I worked on the trade, which was 10/15, the market turned against me. Drat. It pulled back, stabilized out and then had a very nice pop up today on news. I decided to take some profits today based on that move.

Here's what I did today:

1. I bought back the Nov. 60/55 spread for $1.16. This gave me a positive net of $0.49.

2. I then "rolled out" my position by selling a new spread. I sold the December 55/50 Bull Put Spread for $1.01.

Let's do some math to see where I'm currently at:

Lost $0.90

Won $0.49

Net lost = $0.41 (so, I'm getting closer to turning this loss around).

I then took in $1.01 today, I need the stock to either go sideways or up so I can buy back this spread for $0.60. Because then I will make $0.41 on this current trade and this will get my loss erased entirely.

This is a lot I know, but if you take things one step at a time and always know where your profit/loss is on a stock, then you can keep working it as best as you can to get profitable (or at least minimize any losses).

One last and very important thought:

Notice that the 2 most recent blue boxes (where I did trades) are almost the same price, but yet I still made money on this most recent move. How can you make money when the stock moves sideways??? Theta!!! Thanks Theta - love ya.

Update - SPY trade

The stochastics indicator paid off with that divergence play. The SPY pulled back like it did during the past few pullbacks. So that long put option was a good one to play.

Here's the chart:

The entry was the first blue box you see and it was based on the sideways movement and the divergence of the stochastics indicator.

The second blue box was where I took profits on 10/28/09. I took profits on that day for a couple of reasons:

1. It was about the same percentage pullback as the last few pullbacks, and

2. It was basically sitting near that 50 day moving average, which institutional money usually pays attention to (good place for them to get long bullish).

I bought the SPY option on 10/20 for $7.92 and sold it on 10/28 for $10.80, which was a profit of $2.88.

That profit of $2.88 really helped to offset losses in my portfolio since everything else I have on was bullish.

Lessons:

1. Keep an eye on how the general market trades - watch how those pullbacks set up and watch those divergences.

2. Make sure if the market starts going sideways to buy some "insurance" for your portfolio to balance it out. I was completely bullish and had to get a bearish play in SPY to counterbalance that in case we pulled back. Thank goodness I did.

I'm back

I had to go out of town for a family emergency and missed quite a pullback.

I didn't have the ability to really trade while I was away. I was able to follow the market a bit and did cash in on my SPY trade, but that was about it.

The good part about the trades that I was in was that they were SPREADS. Spreads are easier to correct/fix than flat out long options or long stock positions. So, I don't feel nervous about where the market is currently at.

I'll address the positions in separate posts.