Trading in this market is extremely difficult. I’ve been fortunate enough to make a nice return so far, however I’ve made more mistakes than I care to admit.
For example, just this morning I committed a super blunder… Over the weekend, Citigroup received a huge bailout package and the market responded this morning. I figured this was a situation that could be scalped, and decided to go ahead and do that.
To scalp this move, I did two things… 1 purchase a bunch of Calls on the DJX, and a bunch of Calls on C. First move, smart, second move stupid.
Why was buying calls on the DJX smart… Well, because I trade indexes… I tend to have a MUCH better feel for the overall market disposition, and I do much better when trading indexes or larger sectors. I tend to lose lots of money when playing a single stock. So, back to C… I bought those calls at about the high of C for the day, so I’m long a ton of C 7.5 Dec Calls that will be worth next to nothing soon enough…
Now, for the stupid part of the DJX trade. Rather than setup a contingent stop on the trade and allow it to ride the market movement up, I simply set the trade to close out as soon as the SPY hit a daily retracement level. This was just silly. If the market retraces, fine, that is what a stop order is for. Instead of properly using a stop to close it out, I simply put in an automatic order based on the price action of SPY and closed it out WAY early. If I’d have simply kept it open, there was another 1.5 on EACH contract during the day. This wasn’t exactly a small position, so $150 X a bunch = a lot of money left on the table.
Now, to get really, really stupid. I’m still long a truck load of C calls, and now a bunch of DJX PUTS! So, I’m betting against myself…. you might make a case for hedged, but it seems like a bet against myself to me… And better yet, I’M ON A PLANE ALL DAY TOMORROW!
So, what to do… Well, I’m going to properly set up some Contigent Stops on each of these positions before the open tomorrow. I will set these up as One Cancel’s Other orders on the TOS platform. The Stop will be contingent on the price action of the underlying equities, they will drop in based on price action. Then, I’ll have contigent Trailing Stops that will drop in based upon price action as well. If the prices move in my favor, the trailing stop will drop in to protect my earnings, while the initial stop will protect my downside exposure.
If things work out nicely, I’ll capture quite a bit of premium… However, it all depends on the price action.
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