When All Else Fails

I was forced to book gains in YGE at an insulting price. I’m trying to ride a small number of positions out of this sell-off, and am sad to part ways. I still believe in the price target, just not sure about the move between here and $10.

I bought GS Nov 160 calls this morning at 3.25. She is my staple during times like these.

OA

I wanted to reiterate a few words we discussed last night in regards to the market. Last night, we touched on the fact that the Nasdaq/Russell had broken their relative strength relationship. For weeks, they’ve been holding up better than the S&P/Dow. This is why I took TZA yesterday, is due to the fact that yesterday’s weakness was a sign that the bears were going to raid the relative strength trade coming into today.

At the beginning of the month, I warned that the social media/china internet/solar space would eventually cool off and underperform the market. When the relative strength is dismantled, investors start to panic. Two instruments we touched on yesterday were the McClellan and VIX; both said that we haven’t reached panic yet….which we are seeing today.

Also to that point, the Dow and S&P are now becoming the relative strength trade. Investors will seek out quality when attempting to start nibbling.

We are close to a flush, keep your eyes out for sound names that are holding up better than “the market.”

OA

I purchased Oct 500 AAPL calls. This remains my top idea.

OA

I figured since I’ve seen a lot of comments on this topic, I ought to chime in on a few thoughts as to why this is a tough strategy to pull off.

It’s difficult to throw good money after bad. I’ve studied a few Market Wizards of old, and never came across a great trader who let a loss run, only to keep throwing more money at a runaway loss.

If you get into the trade initially with smaller size, with the intent on adding, that’s fine. However, if you are fully sized and wanting to throw more money at a bad trade, over time this is a way to yield bigger portfolio losses.

For those of you averaging down options, let alone weekly options, remember that you are throwing good money at a bad instrument. Options decay. The cheaper a position has gotten, the faster the premium will evaporate.

I don’t have many issues with averaging down a stock position. I do this often, but I rarely average down an option trade. The reason why is that my stock has very little chance of going to zero. My option is guaranteed to go to zero unless I am right about price.

Think that over before you go overboard on averaging down an option trade.

OA

Options

AAPL, BYD, CRUS, DANG, FSLR, GME, MCP, P, PWRD, SFLY, SINA, SODA, YGE

Stock

GNK, GLUU, LITB, MTL, NTE, ONVO, PACB, ROSG, SIFY

As I book gains and manage, I am not in the interest of replacing longs just yet. In other words, if I add any positions this week, it will be because I took off two or more.

UPDATE: BOOKED SINA, P and closed SFLY.

OA

It’s been a long week, and yet I had it easier than most of you did, being on the road for a portion of it. Seems like there were some highs and lows, but overall the tone of the group and participation was pretty positive. From the likes of it, you guys have been making great strides in a pretty complex and complicated environment. Well done.

I think it’s important to speak a few words on this. See, I’ve worked my ass off to get to this point. I don’t sleep much, I study markets everyday I watch them, and I personally know thousands of charts like the back of my hand. In my work, I am confident, because I know the process and the long thought out trading plans that back the trades I take. I respect the market for what it is, and know that at any point I lack respect, I get humbled.

For those that have followed along with me, or know me from days long past, you know this isn’t a fluke. We have multiple stretches like this several times throughout the year. It’s because like most traders, after a long enough career, you start to tap into the pulse of the market. You start to see how it thinks, can anticipate behaviors, and at all times know what the risk appetite is. If I wasn’t tapped in, I wouldn’t have been pounding the table on the likes of these china internet stocks and solar stocks we’ve been killing from back in late July, early August.

I’m loving to see the success everyone is having. Most importantly, I think the principles we’ve been working on support good trading habits. In other words, the skills and processes we work on via After Hours with Option Addict are a discipline, and when applied to a trading system will generally yield positive results.

Be happy about the fruits of your labor, but never fail to respect the market or the challenge of successful trading. Work hard, for the more time you spend at this, eventually you will become unconsciously competent.

See you Monday,

OA