BIDU picking the top

Its been a week since BIDU's crash back to near 400s. The initial drop in BIDU began three days after the gap up. There was an immediate gap down on day four and I scalp the trade for a small gain. (A very similar trend happened in AAPL, it was day four after its initial gap up did the stock go up. I find it very interesting.)


I was unable to capitalize on such simple move down on the stock because most of my capital was settled in, Goldman Sachs, GS options. I was on the wrong side of the GS trade and got whack pretty hard. I had 175 Feb10 calls at 5.10 and sold them for about 1.95. I also purchased call vertical spreads that total my lost to nearly $5,000.

I held the GS's calls until they reported their 4th quarter '09 earnings, and as trend was a tall tale sign, the stock dropped like a rock that day. (JPM and INTC both had positive earning reports for the 4th quarter, but their stocks dropped after the announcing their respective reports.) I closed all the calls I had on GS and turned bearish immediately.

My emotions took the best of me in the GS trade. I broke many rules that I tried to enforce. First was to control my lost, which I was unable to do because the day GS open to trade right after earnings the stock price fell within minutes. My asking prices had to be changed every few seconds but I was unable to catch any bids. Out of desperation to get out of the trade I went with market order. I should had set a trail stop on the trade to control my loses. This trade was just dread awful. Still I cannot dwell on the mistake, instead I must repeat to myself to learn from this and move on.

Another reason why I know it was a bad trade was because the day I purchased the GS calls I wanted to recoup loses I had in my GLD strangle spread. Arrogance got the best of me because my calls never got a positive gain after the day I purchased them. After my consecutive loses in YGE and GLD I should have walked away from trading for the week or at least control my amount of capital to trade so that I would not again, yes again, fall off a cliff. (Metaphorically speaking of my capital.) Foolish me.

Furthermore not only did I lose capital in hold the GS options I lost the opportunity to gain some impressive capital if I could have shorted BIDU. One mistake automatically leads to another. A chain of events that clearly were all hurting me.

There is a bright spot to this. I was able to flip bearish right as I left my GS options and used whatever capital I had to shorting the market and have recoup almost 2/3 of all my loses in the GS options. I also felt comfortable with my shorts when I executed them, which I did not have as much as when I purchased the GS options. I should take note of my comfort levels in certain trades. Until next time, G.L.T.A. in trading.

Big down day for me....

I should had left my GLD straddle position last Friday but did not. Today gold prices increased in dramatic fashion and I took a major hit. At the close of my Jan10 107 straddle I lost $275.5 including commissions. Talk about not surpassing my stop losses for the month. A major blow, indeed.

I am unable to time the market right presently. The internal market conditions are bullish but stocks that I am in are getting whacked. One note to add today is YGE shooting over $18.00 as shown in graph below. Thank god I did not stick around to see the pop up. That would have tacked on at least another $100 loss if I had stayed in my sold puts.

Another example that trend is your friend when you follow it. Clearly my losses were directly on the opposite side of trends. For now I am long financial stocks due to last week's up trend and will be picking at specific institutions. I am not going against the trend....

First losses of 2010

For the total loss in trade including commission, $176. I had purchased 5 veritcal Jan10 puts @ 17.5/19 at $0.90 each but the stock did not decline enough for me to profit on. I held the options for a couple of days anticipating on a further downward decline after significant gains. Instead today was the day where it shot up slightly over 1% in a matter of minutes. YGE held strong at the $17.85 and went up on strong volume. As shown in the white diagonal line in the volume section below.


It was clear to me yesterday the trade was a big mistake but I held it overnight because of two reasons. Sentiment for the broader market was neutral to bearish and the five day moving average for YGE was flat. I knew I was making a gamble, all choices in life are gambles in my opinion because as long as there is a probability between winning and losing it is gambling, and anticipated on a breakdown today. YGE at first looked weak but the broader market shot up in a matter of moments, especially the Nasdaq. Then YGE gained momentum and it was difficult for me to get out of the trade due probably to the small market cap of the stock. I lost about 39% of my total trade investment.

Next time I will probably watch for moving averages to actually decline before I go bearish. Furthermore I should purchase less option spreads on small cap stocks due to lack of liquidity.
Clearly the market is on a neutral to upward trend right now so any bearishness I have to stocks should be at a minimum.

Patience is key and I remember another trade blogger saying that, cash itself is a position. Rather than holding stocks and options overnight I should also hold more cash overnight to avoid big swings in the market. I have a gut felling that even if the market does not look like it will go down, but when it does it will be a downward cliff. Why? The trade volume for the past week is lighter than usual so bulls do not have conviction in the upward push. Yet, "price is the only thing that matters."- Brian Shannon of Alphatrends.net

I have an aspiration to not loss over $3000 this year, therefore each month not to go over $250. I know its highly impossible and I should not have such an aggressive stance on losses. However with this restriction I force myself psychologically to think twice before I make a trade. In essence scrutinize my trades a lot more than usual in order to give myself better odds in profiting.

I am also in another losing position presently, a sale of a GLD Jan10 straddle 107 and the position presently has a $35 loss including commissions. I plan to buy it back without a lost but will have to wait. Good for me is that the five day moving average has finally turned downward on GLD. Will update on this position.