Wednesday, August 06, 2008

Tactics, trading and the meaning of life...sort of!

OK, so I got several emails today regarding the difficulty in trading this current market. I've read a ton of other traders lately and most are struggling. It's funny, 99% of the time we want volatility, its a traders best friend. Having said that, there are times when a trader must make adjustments. I've done it many times, and when I've gotten stubborn I've gotten slammed myself. It happens. What's the saying? Pain is a great motivator, probably the best. When you get in enough pain, you make changes, or you keep suffering.

So, ok, how does that relate to trading this market? My favorite service, Option Trader has been basically RED HOT smoking since inception. Having said that, I made a couple of bad calls recently. I think they will play out ok, but they were bad calls nonetheless in retrospect.

Usually the best lessons in life come from mistakes, you learn more from them then you do from success I've found.

Here are the two trades;

AAPL $160 August PUTS

Right now these are well under water and in danger of being a total zero. I still think there's a shot AAPL gets pinned at $150 next Friday when they expire, BUT clearly we're not in great shape on this play.

WM $4 August Puts

This was stated as a HIGHLY speculative play, one to use 1/4 share normal lot at most. They didn't cost much, but still they will probably expire worthless and again, just a bad call.

Now, I will preface this by saying that I don't believe that a bad call is one that loses. Contrary, most trades called I would justify and defend, even if they are losers. There is a reason behind each of them that I have reason to believe has 100+% potential. In fact, if you look at our track record you'll see a TON of 100,200,500% winners in the Option Trader service.

BUT, the reason these were putrid calls, even if they end up winning is because I didn't adjust fast enough to the last two weeks market trading.

Why? Well, two recent AWESOME calls in that service NAILED the market and how we need to play it with options.

LM November $45 puts were called at $2.40 and sold at roughly $18 recently, basically right at our target and right at the recent "bottom" before it bounced.

WFMI August $22.50 puts were called at about $1.25 over a month ago

So, why besides the fact that they were amazing % winners, were they so good?
Because this market is all about timing. It is a very difficult market to trade day to day. Intraday = awesome, but day to day its psychotic, much more than usual. So, playing AAPL puts that expire in a week and WM same was a bad idea. Now, I think AAPL sees under $100 in the next 12 months, but that doesn't mean it can't go to $180 before that happens. I don't see it getting that far, but it certainly could, there are enough nuts out there that think AAPL rules the world. And WM? Well, I will be shocked if WM is not bankrupt or less than $1 in a year from now (or sooner), but again, that doesn't mean it won't go to $7 before that happens.

So, whats the answer? Well, like LM and WFMI, I am looking now to play NON-front month options for many plays. Yes, we'll still trade short term front month calls and puts, but I think the swings need to have some time to work out. The moves both ways are so sharp that playing stuff that way means you are all or nothing. I prefer to have a bigger edge than that. And, I think if I had called AAPL let's say NOV. Puts, even though they have a heftier premium, I think we'd be well in the money at some point between now and then. So, if AAPL moves against us using that theory then yes, we will be down, but there is time for it to work itself out. That doesn't guarantee success, but it gives us the chance to get there, and if we get the move soon, then we're giving up some premium, but its worth it in this market.

I love AAPL lower, but again, I thought we'd rally here, so there's no excuse for me being that aggressive in calling the puts before letting the bounce pan out.

And, WM? Well, that was simply too aggressive, they aren't looking to bury the financials just yet. they will be totally buried in my opinion, but the Fed is trying to hold them up and succeeding for the short term, so again, its better to call the January WM puts, pay more premium but give ourselves a better shot of success.

Swinging for singles sometimes truly is the best policy. In this market, its a great intraday traders market, and swing trader, but the day to day trades are tougher and we need to respect that or suffer the pain of loss.

One analogy. Today my cab driver didn't have his seat belt on. I was with my daughters going to Disney (I really think this place is horrible for kids under 8 or 9, the lines are just abysmal and my 5 and 7 year olds go nutso waiting an hour+++ for a single ride! It's brutal!) and the cab driver didn't put on his seat belt. And, the cab kept making that horrid sound - ding-ding-ding, but still he didn't put it on. My kids noticed it, it bothered them. After about 5 minutes I asked him to put his seatbelt on. I kept thinking, surely he will put it on on his own, who the hell wants to hear that stupid ding-ding-ding when its so easy to just put on the damn seat belt!

And, the seat belt could save his life!

And, there ya have it, sometimes in life we all don't think about the consequences until its too late. If he gets into an accident (when) hopefully it won't do a ton of damage, cause then it might be too late to stop the ding-ding-ding.

Don't let YOUR trading go ding-ding-ding, put your seat belt on and learn to earn, and certainly learn from my, and your own mistakes!

I love the solars short here, fyi. I think that is the next sector to crack. Watch FSLR, SPWR and CSIQ for potential nice shorts here short term. We are getting/got the move on the Russell I said I thought we would. It went to nearly 730s today, so we're very close to my upside target. Yes, its possibly it goes to 750 even, but I think the risk/reward is certainly getting dangerous on the upside. ANd, its on very light volume, not a good sign it has much more to go. We shall see either way, but be careful if you are long, it might be a good time to scale out of stuff. Every 300 pointish move we've gotten so far has been sold HARD, I prefer to wait for that trend to be broken before holding for more than a short term trade on the long side.



Erik28 said...


w/ the pseudo financial rally "do not look behind the curtain" shield of false protection "upholding" of the Finacial Sector.
I bought into SKF yesterday at close @ 112.89, Don't expect it to SKYrocket to 210 in no time flat like the last big one. But i dont forsee it going much lower.

Qa) If and/or when they remove that no short crap on aug 12th, is there a particular Finacial stock that you see has been "shielded" from the damage, that's ready for a good short pounding? (or do ya think that's null in void and those stocks will get re-protected or whatever they call it)

Qb) With this little recent rally looking to possibly top out here. What other ETF's do you see as a less day to day, more like week to month holding, that might be strong for the next bear storm. (bear ultra short etfs i mean) As in , besides SKF, you have a fav short bear etf sector?


Qc) Im newly long DIG, 2% up. stop loss is on. Do ya think it's a waste of time, or think it's a safe slower gainer for to 90?

Qd) RTK, juicy SHORT term short prospect (intra to 1-2 dayer) up coming???

Thank you for all your hard work Waxie!!! If the 4 questions and 18 paragraphs are too much to ask, i suppose i understand.

Mario D'Agostino said...

Hey Waxman,

If your in Disney World, try out Maggiano's on I-Drive. Great family restaurant for the girls and great food.

ardub said...

California here. 3000 miles away and rooting for you. As you said in your Blog, not every one is a winner. But with you as coach, we all have a lot better shot at finding that winner and being on top of the Market in general.
I pick and choose from the Option Plays that you give. The other day I had a Call on AAPL when you said to lay down a put. I hesitated to make the move and it turned out right. On the other hand, I took the NEM puts the week earlier and Chingo madingo.
I don't follow your every move but I listen real close to your trend theories.

Erik28 said...

sold DIG and put that into SRS (Ultra short Real Estate ETF) so scratch that question please.

my ZION sep 30 puts up 39.5% today,

Thanks Waxie!!

Waxie said...

I think you can't stop reality and reality is that financials are DONE. Look at FNM and FRE, Fed could do whatever they want, they both going to zero, period.

SKF should see $500 within 12 months.