Sunday, January 27, 2008


I feel to a certain extent that I am at a crossroads right now. The world market crash on 1/22 ends up being precipitated by a rogue trader that circumvented the bank he works for trading checks. Some of the damage done to me personally was permanent, though partly my own fault.

I went into the weekend holding out of the money GOOG calls, that I could have sold that Friday for a small net gain of .10 or .20. Instead, I started the week with 90% loss on those calls. I ended up with some liquidity issues due to the decrease in my portfolio value, and ended up selling a few shares of MVO that I had bought for the dividend at a loss, just so I would have enough money to trade. I didn't do it right away, the first couple of days I waited to see what would happen, but soon enough it became evident that taking a small hit on those few shares (about 15% of my MVO holding) gave me enough working capital to begin recouping my losses.

The prior week I had quit trading early 3 times. I still believe that eliminating fear and greed in this uncertain market is key to getting ahead in this market, however after last week I'm not convinced that my approach is going to work.

The problem with options trading is that it all occurs during trading hours, while the stock trading can occur during off hours. Therefore, a stop loss on a stock will trigger as the market falls, however in my case, since the stock fell in off hours, the option bid ask gapped down before option trading began, therefore the stop loss on my options did not trigger. I rode it down farther than I had to, definitely, I could have taken a 35% loss, at one point that first day. However, since I had already broken my round trip rule, and the options were good for another few weeks, I decided to ride it out.

In the mean time, I have made a few dollars on the puts since I'm watching the stock anyway. My issue now is, as a trader, what is the right thing for me to do?

By limiting the amount of money that I am making in a day, I felt at first that I was limiting my chances of giving back what I gained. That may be true, however in this volatile market, I see that there are ways beyond my control for me to lose money that is exposed, without it being my fault. Losing electricity, watchlist and level two's not updating properly, rogue traders in Paris all can take a bite out of me when I'm not looking. So, now I am at this crossroads. Part of me feels that I need to continue to put those limits on my trading, however the other part of me tells me that by doing that, I am not taking full advantage of the days that I am trading well. Because, lets face it, that is what my style of trading comes down to. If I am jumping on and off stocks well, that means they are moving in the direction that I am expecting them to move, and I am executing my trades profitably. Since I don't know if I will be able to do that tomorrow, shouldn't I keep trading throughout the day?

It's difficult to know which is best. Part of the quiting work early has to do with lifestyle as well though. Every day that I can quit early, is a day that I can put those hours to use elsewhere in my life. At this point, however, I am starting to feel that I need to continue trading on the days that I am making good trades. I'm not going to make a decision yet. I'm going to play next week by ear.

Starting out next week I have some POT calls that are free and clear (I sold half the position last week for a 140% gain) and the notorious GOOGLE calls. I have 3 weeks to find an out the contracts. GOOGLE announces their earnings on January 31 (this Thursday). This could be a huge gain for me, or a huge loss. My plan is to get rid of at least 2/3 of my position for a gain before the announcement. Hard to know what will happen in this bear market. Wish me luck!

Always perform your own due diligence before making any investment.


Anonymous said...

Wow - my head hurts reading all this! Obviously, you are earning some real experience and hopefully not at too large a cost. Best of luck to you - and unfortunately a lot of this is so out of your control that it almost really DOES come down to luck.

Thinking of you -

CaPrincess said...

Hi 52,

It's been completely nuts the last couple of weeks. On top of everything, I and hubby both have inherited a Peruvian virus his boss brought home from her travels. :D

The good news is I'm still treading water. My google calls are pretty much dust, but I bought the stock with some puts as a hedge. It's been channeling 500 to 510 all week. There isn't much more painful than watching google move sideways. Anyway, I like the support it has at 490, and I think once things go north, I will recoup most of my lessons with the shares I have socked away. *crossed fingers* Hopefully it wont be too much longer!