Plans, Audibles, And Simple Charts - Part III
How about just planning to make some $$$?
Not all my plans are dictated by technical analysis. At times I use T/A "arse"-backwards. An example is Cypress Semiconductor (CY), which I started liking when it seemed to me that their SunPower subsidiary will unlock quite a bit of value once it goes public.
When I first went long CY, I did it by going long calls and shorting stock against it. As the stock moved up I slowly sold some of my calls locking in some gains. As the stock pulled back I began selling puts against my short common. Now that the stock has actually broken some technical support levels, I am covering the short common and looking to get long the stock if I get assigned. Why such convoluted coming and going?
Initially I wanted the leverage of calls, but no filings had yet been made about the SunPower IPO. With that information lag, the stock could have just as easily lost steam based on the fundies of CY's other businesses, which are not in great favor right now. The short common would have "paid" for some of the calls. That did not happen, and as the stock gained about $3 without any catalyst, I figured people were buying the IPO rumor and would be more likely to sell the news. When I have nice gains in long options I take them because time works against me. As it goes, the stock has in fact pulled back; half my calls are gone, and with the IPO now approaching (by year end) I feel more comfortable going long the stock. As that happens, I will punt the rest of my calls.
Again, I am not laying this out to focus on CY specifically. Rather, to show how my thinking about CY's fundies and the IPO catalyst, shaped my positions in a way that covered different possible near-term outcomes. As the stock gyrated however it did, I simply followed through with how I had planned to react to such moves, while always hanging on to the ultimate goal of being long the stock as the SunPower IPO unfolds.
It remains to be seen whether this trade ends up being meaningfully profitable, but in the meantime I was at least able to address more than just one scenario.
Sometimes my plans for a particular stock completely ignore the technicals and even the near term fundamentals of a company. I may own or short a position because of an overriding macro theme. An example of this is Applied Signal Technologies (APSG), a pure play on signal intelligence and other defense / homeland security projects. I started buying APSG in the low $20's so I am actually losing a bit at this point. But from the get-go, the plan was to buy weakness no matter what the immediate news flow, and sell a little of it on strength, slowly growing the position while lowering the overall cost.
I do not see any near term catalysts for APSG. Quarter by quarter, they are just as likely to disappoint as they are to show great numbers. But unless peace explodes all over the planet, or the company is hit by non-business related issues (accounting problems, regulatory issues, whatever), I will attempt not to be scared by sudden sharp drops, just as I hopefully will not get piggish if the stock pops for no particular reason. The goal is to stick around until the homeland security / intelligence / defense themes appear to have run their course.
Finally, a comment on my "simpleton" use of fairly basic technical indicators. To many Minyans the use of Moving Averages and trend-lines may seem "offensively" simple. It isn't that I do not believe in much more complex technical analysis, but being a "technical analyst" is not my job. Furthermore, I fully recognize my limitations in knowing how to use these more sophisticated tools. For macro plays especially (indexes, etc.), I try to stay up to speed on more complicated technical work by reading other people's research, be it our esteemed 'Ville's professors, newsletters or the sell-side. For individual names, I often back-test more arcane indicators to see what may have worked best in the past, and what they are suggesting at any given moment. When all else fails I bug Scotto.
But in the end, whatever tools I may use, tools are just that. My objective is to have contingency plans that strike a balance between my goals and my risk tolerance, but most of all, that provide me a certain level of clarity when the blip hits the fan.
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