Random Thoughts: How Do You Shoot the Devil in the Back? What If You Miss?
Gaming conventional wisdom into expiration Friday.
OK, I'm always early-and through the years, I've been schooled that if I was no longer "there" in terms of exposure, there was no difference between being early and being wrong (cue my Fannie Mae $70 puts, which I rolled and rolled and rolled until, after a multiple six-figure lesson in my personal account, I finally slapped it on my restricted list...right before it began its migration to 70 cents).
I went home Monday night licking some wounds and carrying my fair share of short-side risk (this I know as I sat in bed checking my Bloomberg while children-and cats-slept about the house) and in an attempt to use yesterday's price action to my advantage, I unwound a fair share of my short-side stabs in the NDX and S&P.
While the covers felt wrong at the time-it felt like the tape was gonna get pretty messy-I reminded myself of two items: 1) trades are made to be taken and 2) we should never begrudge a green P&L, for that's the quickest way to a red P&L.
I can't talk about "discipline over conviction" without practicing what I preach and I was again rewarded for that discipline yesterday. As soon as I covered my short-side "overage," the market spiked higher on expiration-related imbalances.
With that said and respected-and looking forward not back-I can't shake the sense that a deeper and more profound gut-check awaits the tape. How deep, you ask? To the point where buying dips is no longer rewarded-or, viewing this through another lens, where the dip buyers are punished for their Pavlovian behavior.
Again, and just one man's humble opinion, the "easy" upside trade (quotations on purpose) was in December when the bears growled the loudest. Now, given the bullish bravado, I'm holding on to my risk leash with two hands and gritted teeth.
Stylistic approach matters. Trading around a long (or short) bias-and knowing when to flip that switch-is half the battle and yes, it's possible to skillfully employ both approaches when trading multiple vehicles. And I would highlight the difference between covering shorts and scaling into additional longs-one reduces risk, the other increases it.
When in doubt-and this is important-sit it out, trade "in-between" or "hit it to quit it," as we like to say in the 'Ville. Everyone has an opinion these days-some more educated than others-but when trading, the only person you have to answer to is yourself, and you will every day.
One step at a time as we together find our way.
I entered today's session with an appropriate risk profile (25% short bias) and have been adjusting it in real-time over on the Buzz & Banter (free trial!).
I know that I'm sized right because I'm in a position to add exposure (higher) and cover exposure (lower), all within the context of defined risk parameters (under the S&P price target that we highlighted in December).
While I continue to sense we're in the "denial" phase of our emotional continuum, I respect the animal spirits and will manage risk accordingly.
- I've traded my fair share of parabolic frolics-from Yahoo (YHOO) circa Y2K to JDS Uniphase (JDSU) to China to crude (remember that?) --and understand that markets can remain irrational longer than most folks can remain solvent. That's why risk management must always trump reward chasing.
If you trade, or are interested in, technology stocks and aren't reading Sean Udall's TechStrat then you're missing out. Check it out with a free trial.
Herr Schaeuble, so you're saying there's a chance (of a Greek default)? Or just that you're better prepared? Either way, this is a very curious article on the heels of Peter Atwater's astute insights.
Interestingly, the pushback on the Apple (AAPL) article was entirely more muted than The Gold Scold?
Leon Cooperman and David Einhorn have taken a position in Research in Motion (RIMM). I'm still there, trading around a long, with a stop set beneath the December lows.
S&P 1342 is the level of lore for bovine galore; as long as it's under-hoof, they'll continue to feel empowered.
- With that said, I sense that NDX 2400 will be tagged before any (potential) resumption of the uptrend.
My cats have seemingly come out of the closet (not that there's anything wrong with that); how do I explain the feverish "wrestling" to twin 8-year-olds?
- What do they put in the ginger salad dressing in Japanese restaurants that make it so darn good?
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Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
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