Go with the Flow

In light of Friday’s botched trade in [[BSC]], I’m adding a new rule to my Trading Rules:

TAKE THE OBVIOUS TRADE!

I think by now we all know the events that transpired with BSC and its put options (sidenote:  can you say, insider trading?).  I originally saw the egregious volume highlighted over at the Option Addict, made a mention of it here, and helped at least RC make enough for ‘a few beers’.

So with everybody taking the obvious trade (buying the put option, for what turned out to be about a 400% gain), what on Earth possessed me to do the opposite (selling the put options, very much convinced at the time that this was the ‘smart’ thing to do)??

Some may attribute it to lack of focus in the morning, lack of any real plan, or perhaps over thinking (those braincells have since been promoted).

However, we may never truly know…as these events will soon be shrouded by history’s cobwebs and repressed by future profits.  (At least I kept my risk to the standard 2% and thus avoided destroying my account, a la HPT’s infamous episode.  So really, it’s not the loss that is bothering me about this; it’s the sheer stupidity of it all.  Of course, taking the 2% loss vs. the 400% win doesn’t help either.)

Fortunately, there’s a lesson somewhere in there…don’t bet against the money.  Go with the easy & obvious trade.  Keep it simple, stupid!  Or, as QotSA says, Go with the Flow:

[youtube:http://www.youtube.com/watch?v=9nz6Rq1Pvh0 450 300]

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Besides the botched [[BSC]] trade, I haven’t done anything today.  I’m tempted to just blow out all my existing positions (which are at a cumulative breakeven) an re-evaluate over the weekend.

In light of that and general market action, I’m calling it a day/week as of right now.  Got a few more hours of work/meetings and then I’m off to drink beer.

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CPI looks ‘good’; the world is not ending; everything will be fine; humans are still alive!

We can now concentrate on more important matters:

NOTE:  Sold short a bunch of [[BSC]] 25. puts.  They have a week to go to expiration, yet are egregiously high due to insolvency rumours.  But do we really think the government would let BSC go bankrupt?  They’d bail them out before anybody else.  In any case, hold until next Friday; easy money unless the stock drops 50%.

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When the CPI comes out tomorrow…it will be “binary solo”-time!

[youtube:http://www.youtube.com/watch?v=WGoi1MSGu64 450 300]

UPDATE – Tomorrow’s Ideas:

Bullish:  [[CTRP]]

Bearish:  [[APH]], [[CYMI]], [[MOS]], and [[BSC]] – (check this out, @ the Option Addict).

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Well, let’s see…gold is above $1000; oil is at all-time highs; the dollar is falling to record lows (buying less than 100 yen for the first time since 1995); retail numbers suck; and economicst agree that we’re in a recession, yet somehow the market recovered from -2.0% to finish positive (on the 1 positive news of the day!). 

But I’m not complaining, as I’m 80% long (excluding straddles).  Added 2 long positions this morning (from yesterday’s watchlist) and then, in the spirit of taking it easy, did nothing else.  In fact, due to work, I didn’t even get to look at the market again until after close.

DP Buys:

• [[GME]] Jul 2008 45. calls – went with the July calls due to their lower volatility & theta, yet almost exactly the same delta, than the corresponding April options (and no May/June options are available).
• [[PALM]] calls – small position with Mar 2008 5. calls.  These are ITM, but with PALM barely hanging on to the $5+ level and expiration in just over a week, they are pretty high risk.  So I made the total position value equal to my max. loss/position allowed to be safe.

Missed the ball on [[AMGN]], as it ripped higher, although [[AXP]] is still a viable opportunity for some puts.  AMGN could reverse as well, depending on how the FDA rules on their chemotherapy drugs.

CPI, aka. the inflation indicator, comes out tomorrow morning, before market-open.  This will be a market mover, as usual…  If I’d have to guess, I’d say it will be bad and we’re taking the elevator down.  Should that be the case, I will flip all calls for puts and enjoy the ride.

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With The Fly coming out of retirement, I have to hand the keys to the machine back to its rightful owner. But it’s ok. I got great (quantum) mileage out of it yesterday & today, banking more coin than the rest of this year combined.

For the rest of this week, I will be taking it easy, managing my existing positions (especially those long straddles in [[GOOG]], [[RIMM]], [[JCG]], [[TTWO]], [[NG]]) and watching a handful of stocks.

The watched stocks include (sorry, no charts):

• [[AMGN]] – support/resistance at $44.50-45. Looking for a break either way…
• [[AXP]] – similar situation with resistance at $44.50. I’m definitely bearish on this though.
• [[CPO]] – on it’s way to $40 and looking to break higher
• [[GME]] – Look at DMI/ADX – showing a possible trend reversal. Looks like it wants to start a new uptrend? Held support @ $42, broke resistance @ $46. Next level is at $49.
• [[PALM]] – support @ $5.25; oversold

UPDATE/GENTLE REMINDER:

Sign up for iBC March Madness!

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