It's a good start to the day for me as the market has followed US and European weakness with a 1% fall. It's also a test of resolve in CBA. The stock has dropped 60 to 4995 but I've been sorely tempted to sell out a few of the extra July 5050 puts. The total position is long 200 July 5050 puts (20k stock, 100 shares per contract) and short 100 July 4900 puts. The 5050 puts are worth about 100 having been as low as 20 odd the other day, which equates to about $10k AUD for the unhedged puts. I don't want to leave that on the table but I know that you don't make the big bucks (or even the medium bucks!) by cutting a winning position for no good reason. Funnily enough, I don't have the same itch to unwind with the spread portion of the trade; the short leg is trading at around 45 so the spread is worth about 55 (or $5.5k) with a potential max of 150.
European debt woes are increasing again and the potential is there for funding costs to rise so there's a short term catalyst for further weakness. This is exactly the sort of situation which has inspired me to focus on the therapy angle and I'm not really sure what I can do to improve my trading except to simply acknowledge that I don't find it easy to leave well enough alone.
As for intraday trades, I've done a couple and nothing much has happened with either. They're both ok but not compelling. It's tricky when you have a gap down day, most of the move tends to happen on the open, so the trades I have on are a tad contrarian with tight stops.
The first is in LNC and is a long position, bought at 278. There was a takeover bid overnight for coal stock MCC at a decent premium to the last sale, so the sector is a potential outperformer. LNC did not fall with the market and held yesterday's low of 276 so I went long on some minor strength with a stop at 271.
This is a trade that would pay off if the market was going to rebound from the early sell off. In the last quarter of an hour, the index has had another leg down so it's doing ok to be at 277 still.
The other trade is a short in NCM at 3875. I'm looking for the stock to roll over but it hasn't happened. The daily signal would need a break of yesterday's 3860 low and I took a minor intraday signal trying to jump in ahead of that. My stop is at around 3905 and, the way it's going, I'll do well to break even here.
12.21 The sell off is gathering momentum so that the market is down 1.8%. There's real concern about the European banks and Asian financials are hard hit. I'm pleased that I've managed to leave CBA alone so far; it has been one of those fast moves which is easier to handle. The stock is down in line with the market.
I've put on another intraday trade, this one a short position in LYC at 194.5. The stock gapped open but the daily chart is ok and it had been finding support. There was quite an arm wrestle but with a recent break of the intraday low of 194, it's possible that bullish confidence could vanish.
As I write this, the stock is clawing back. The story of my intraday trades today is that I missed the boat thanks to the opening gap and I'm trying to short outperformers in LYC and NCM.
1.10 The market is showing no sign of bouncing and I expect further weakness towards the close of trading as the European opening approaches.
Of my overnight trades, IPL is down to 380 and my stop is at 379. I sold out half earlier at 388 on a bounce. PBG is also drawing close to a stop. There's compensation on the short side with PDN down 13 to 244. This is one that I'd like to hold until 220ish. Last month's low was at 225 and the pattern is quite orthodox.
I was with a friend the other day, discussing the pros and cons of hanging out for big moves versus more regular but smaller wins. His opinion is that whatever you do, you stick to it. And that's generally my idea too. I'm a trader who prefers to have a smoother earnings stream at the expense of the odd home run. It's partly a personality thing and partly the reality of needing to make a certain income every year. It begs the question of why I'm trying to ride these option moves to the max.
The answer is that if I do it right, I can get a mix of income streams with, hopefully, a slight reduction in return in some months in exchange for a big boost at other times.
Notwithstanding, I'm concerned that I could be repeating the June errors I made, where I didn't take profit on FMG calls and that had a kind of domino effect on the rest of my trading. I've decided to sell out 50 of the July 5050 CBA puts by the close since the stock is approaching last month's low and there is the possibility of support. Here's the updated daily.
The chart really looks shocking so it would be quite easy to just let it ride. I guess I'm not quite ready to go all the way yet!
I have July 4300 puts in BHP and I'm planning to do something similar by the close. I can see this making a higher low though, so it's not such a psychological battleground.
I'm out of IPL at 379 and 380. I sold 25k today at an average of 383 (v 389) thanks to letting a few go at 388. I also sold 5k at 397 on the way up so there's not much damage done. I'm surprised though, I was pretty bullish about this one. I've let LNC go too at 274. It's a day trade and is not looking like it's going to rally and I expect the market to keep grinding lower...down 90 now.
2.26 Shortly after writing that I expected continued weakness, I could see the market starting to bottom, even if just for a while. I'm out of 50 CBA July 5050 puts at 120 and tried to sell some BHP July 4300 puts at 60 but missed out.
NCM is starting to go my way by a fraction, last at 3873. I realise that I fell into the same trap as I did yesterday with my intraday trading, trying to be clever rather than doing the simple thing. I had a list of potential shorts before trading that went like this: FMG, LYC, NCM,OSH, QBE, SUN, WSA. It was probably too hard to get short QBE, SUN and WSA because they gapped lower but FMG and OSH had clearly made decent sell signals by 10.30 am yet both had nice entry signals soon after. LYC and NCM by contrast, were not painting a clear picture.
4.12 The market slipped towards the lows but finished a few points above, at 4495, down 87. I sold out 50 BHP July 4300 puts at 58.
My intraday trading was minus 600 in LNC, plus 300 in LYC and plus 200 in NCM along with costs of 140. It was negligible in the context of the day and I don't see that it affected my focus elsewhere. Two or three days is nothing as regards making a decision on the long term viability of this trading, but I'm happy to have some guidelines as to how I can keep myself busy without affecting the core of the business. I would love to get a reliable income stream out of this activity, it should be the lowest risk trading I can do since overnight uncertainty is taken out of the equation.
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