8 Working night shift from 6pm-6am at times has me missing the first hour or so of trading. In most cases it is not a big deal as I don’t have over-leveraged positions. I mostly trade options in which the whole position doesn’t compromise more than 5% of my account. Last night I replied in Rhino’s post that I had put on long positions (via credit spreads) in IBM and BIDU. Well you can probably guess where I’m going with this.
Today I woke up around 11:30EST, rolled over and looked at my brokerage app on my phone. What was a nice performing position in BIDU yesterday as I went long on that mornings dip, now looked horrendous. My first thoughts as emotions overcame my reasons for entry were “I hate those fucking Chinese stocks, why the hell did I get into this thing?” At the time it was trading down something like -5%, what the hell could have been the news? I went to my desk and then the first thing I saw was that it was seeking legal action against QIHU and it was downgraded by an analyst from Deutsche Bank. If you’ve read my posts/replies in the past you know that I categorize child molesters/rapists/thieves of personal belongings all the same; well analysts are the next people to throw in there. I believe they are some of the biggest manipulating & useless people within finance.
So my position in where I was up around 9% at EOD yesterday is trading around -30% and things did not get better. The stock continued to sell off until around 1pm EST. Did I panic and sell my position? No, although typically I would as it was around a -40% loss on the option spread and represented around a 2% loss on my account alone. Either way BIDU demonstrated that those types of losses can occur but usually I am out way before then as seeing my stock down near 5% is a signal that the trade is not working.
Moving on, my game plan was now to wait and enter into a long position for the swing. To me the news that caused this drop caused seemed extreme and watching the dollar volume, it was hitting panic levels. Also I turned to my volatility chart and we were showing extreme readings. I entered the trade when it was trading down over -8% in which it ended up trading as low as -10%. One of my favorite trades is fading the analyst downgrade and I felt that this was a bit much so when I believed that the stock should retrace the selling I entered into a next week 110 call option with BIDU trading at 112.84.
So what did I do next? I went for a run. Yes this may sound stupid but it was the afternoon, I needed to clear my thoughts now and I would return at 3:15pm EST. Also with the added position I was still okay with the loss if we saw more selling through the day. I have found removing myself from the trade in these situations is best as I often have the tendency to overwatch it and not let it work. I returned and saw that the position was up 5%, not bad considering where it was before. Then I thought that this could be a really nice trade if it kept going….stupid thought, don’t ever think like that. So I remembered how I wanted out of this trade, my adjustment worked, and I cashed out returning a little over 2% on the whole trade, so basically nothing for my account besides mitigating a bigger loss. Either way I will be able to go into tomorrow not caring where BIDU is at.
I plan on making this trade visual via charts and showing my thought process when I get home on my computer as I didn’t have time EOD and have no access right now.
**Side Note**
If you are an outdoors type I suggest the Google MyTracks app as I have found it to be great. Below is the data taken from my run, consisting of interval runs. It downloads the info to their Documents spreadsheet and plots it on a map. I like to use it for running, hiking, and kayaking. Also not a big runner so keep your jokes to yourself….please.
8 Responses to “Yes, I Was Long BIDU Into Today”
Sur Platonic Plateau Du Tecnocrats, B.R.A., D.J.D. upon Rookness.
Perhaps a less volatile industry?
Tech. and Bio are typically more volatile.
Perhaps Utilities or Defense sectors could offer better spread approaches?
BTW: I’ve been crucified on earnings too; notably, $YHOO and $WYNN in 2011.
$WYNN wasn’t my fault, I got greedy with $YHOO.
So I ain’t here to preach.
redman59
Thanks not a bad idea, usually play penny increment options with these for liquidity, but filtering to industry could be good too.
Yea earnings are a gamble IMO and hard to gauge. Only play those willing to lose 100% of the option play. I personally like to play earnings in the volatile industries for selling juiced premium and also if on opposite end looking for a big move.
zenhunter
In the long run, getting out at the market open when your position is under water from news is the best policy from my experience. Sure, you may have a few occasions to reduce your losses; but there will also be times when your losses just keep on getting larger because you hesitate or wait.
Getting out at the open free you from wasting your energy to deal with it and offer closure so you can move on.
Just my 2 cents.
redman59
Thanks Zen and yes usually I don’t like to add to losers like this for reasons you stated. The problem was that I didn’t see the market until 2.5 hrs in and BIDU was down well by then so I missed the open and news event.
Probably should have cut when I saw it down 5% then add if looking for that quick reversion, but was definitely caught off guard. I did see some things that led me to believe there was a high prob for reversion & looking to share those on another post.
You are right on the wasting energy. Couldn’t agree more as I’ve found cutting those losses saves you that mental capital.
Arctic Gambino
Awesome job man. That DB downgrade was such a manipulation. I was watching it hit the wires and I’m sure they front ran that before posting for public.
redman59
Thanks, seeing a stock like BIDU get hit like it did on that and seeing it down 8-10% just seemed a bit much. I really hate analysts for the reason you stated, manipulated BS in my opinion.
Yeah I had luck with the rebound but I could justify my going long and would take the same trade many times over…too bad the one I had on already took the hit it did.
elizamae
I think Zen is on to something when he was talking about “getting out” right away.
Here is my reasoning: if you put together a trading “career” of 20-30 years, you are probably going to be a part many “upgrades” and “downgrades” just by chance. If you cut your losses immediately on the downgrade news, odds are that over a long period of time, the total number of upgrades and downgrades you are involved with will probably be a wash.
Basically, let your upgrade winners run and cut your downgrade losers, and over a long period of time, you will probably come out on top of those ‘abnormal/unplanned’ events. Just a thought.
Of course, if you have a trading plan based off of what happens AFTER the UG/DG, then that’s a different story…my initial comment was in reference to holding a position in a stock prior to the news.
redman59
Nice perspective EM and makes perfect sense, thanks for the insight.
I do like to play the DG news on strong stocks and when in a bull market like we are here, especially if it gaps down a bit. I then take the trade for a day trade or quick swing trade. Looking for a single.