Market dropped over 1% again today, that's two out of three days. Not bad at all for shorts. It's better than Wednesday.
- But countless bounces after sell off made me nervous, as a result, I sold some of my DIA puts, only to see them closed up another 15% after I sold them.
- This is the golden rule, whenever you hold them they will drop; and when you sold them, they will rise. But I still have lot of puts, and I added QQQQ puts after I sold DIA puts. These are July puts, we still have 4 more weeks to go.
- The reason being, Dow and S&P 500 dropped about 2% this week, and Nasdaq only dropped about 1%, so if this time the correction is for real, Nasdaq has more catch up to do. And the premium on QQQQ is lower than DIA, I think, so I did the switch.
- I need to improve my execution in the future, find better enter and exit prices. On Wednesday I didn't sell, and they bounced on Thursday, today I sold, I hope we'll have another sell off on Monday.
- From TA perspective, S&P500 broke down below 50MA, and if it takes out the June 7th low of 1492, we can sell a real correction, next target is 1460. Then all the way to 1400.
Plan:
- I need to sit tight to do two things:
- If it's another one time wonder on Monday (another 1-2% down), then I need to sell them all.
- If it's just the start of the correction (5%-10%), then I need to sit tight to ride them to the expiration date.
- How do I know if it's 1 or 2? This is up to me to decide. I think a sharp drop on Monday, I'll sell another set of positions. If it's a less than 0.5% drop, I'll sit on them.
- I will sell when we have another 2-3% drop next week. Also I'll use VIX, ISEE, RSI numbers to help me to find the short term bottom and sell puts close to the bottom. It's a very difficult task.
- I'll keep the short ETFs for now.
2 comments:
Here's some great medicine from SmartMoney.com:
http://finance.yahoo.com/banking-budgeting/article/103144/Seven-Money-Mistakes-to-Avoid
Note number 6:
6. Letting your ego get in the way
DIAGNOSIS: Overconfidence
SYMPTOMS: Frequent trading; concentrating picks among a handful of "surefire winners"; thinking you're an above-average driver.
Studies show that we often tend to overestimate our abilities. Of course, confidence and optimism aren't necessarily bad. But in the stock market, overconfidence leads people to believe that they can beat the market when, more often than not, they can't. The consequences are high-risk investments, overtrading and under-diversification, all of which chip away at long-term returns. In their study "Trading Is Hazardous to Your Wealth," University of California professors Brad Barber and Terrance Odean found that individual investors who trade actively trailed the overall market by 3.7 percentage points a year. Odean says that while many people believe they can identify winners, they not only miss the mark but also rack up a lot of commissions and other trading costs.
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Plenty to chew on here.
David
Great post David.
I traded too much and most time one day behind the market.
But I need to trust my reading of the market as well, that's all I have. I trade because what I see, not because what I lost or being wrong or right the last 6 months.
Very hard to do, but nonetheless I need to do it right. This is the only way I can learn and improve in the future.
I think market decides if we need to trade more or less.
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