Random Thoughts: Q4 Arrives With a Bang!

By Todd Harrison  OCT 01, 2012 10:35 AM

Looser grips relax risk parameters.



Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter.

It's a beautiful autumn morning as fund managers relax their risk grip after a very intense weekend.

I'm not referring to stresses associated with NFL fandom -- or PeeWee football for that matter, despite our first game (and our first win!) -- I'm talking about the third-quarter investment letters that were written and mailed by fund managers. Who shall live and who shall die has been determined by who has bought and who has sold -- and that's only gonna get more acute as year-end dances closer to reality.

At the center of this week's great debate was whether the recent slippage was a healthy retracement -- and we bounced right where we had to -- or the beginning of the "denial" phase of the bear case. While we won't know without the benefit of hindsight, we must position ourselves based on the here and now, decisions that are easier said than done.

I enter a fresh five-session set with balanced and measured risk. I'm long (half of my original) Facebook (NASDAQ:FB) common with a cost basis of $20 and a stop below recent lows, I have slimmed QQQ (NASDAQ:QQQ) December out-of-the-money puts (bought with the underlying at QQQ $68.30), a snivlet of Google (NASDAQ:GOOG) November out-of-the-money puts (bought when the stock traded $760) and a smallish oh-by-the-way Research in Motion (NASDAQ:RIMM) upside bet (bought at $7.65; stop below recent lows).

This positioning is entirely more palatable than the one-way bet that I sweated out before getting bailed out. I was too big -- I know this because I was watching every tick -- and it was a lesson, which is pretty crazy considering I've been trading 22 years and should have learned that lesson long ago.

Ah, the travails of being a human being rather than a black box.

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Twitter: @todd_harrison

Position in FB, RIMM, QQQ, GOOG