Friday, April 27, 2012

$AMZN $AAPL $CAT $CMI Lesson in listening to your own advice

I keep saying that this post is real trades with real gains and real losses. Here is proof.

BACKDROP: Going into yesterday (4/26) I had a 200/195 credit put spread. Yes, it was in the money but I had originally sold it in the money. I sold it and collected $2.94. Max dollars at risk were 5-2.94= 2.06.
My thesis was based on the fact that amzn doesn't get the respect it derseves. It is the biggest gorilla and it's infringing on so many industry leaders like aapl nflx goog fb and even ups and fdx for crying out loud. Yet, every market maven poopoos it as a big spender giving away margin. My view was that it's eating everyone else's lunch and driving them out of business AND still making money. Any smart business owner would what amzn is doing IF only they knew how or were able!

DOING THE RIGHT THING: After listening to the investing community all day (and week for that matter) how amzn is going to disappoint once more and how they are spending fools with no end in sight, etc. I made the mistake to give in and join the herd; I adjusted my position so I 'sprawled' into an iron condor positioned to expect a downward move. the logic was as follows: everyone is expecting a move down so instead of having  my short put leg become a 1.0 delta and difficult to manage. So if I leave it alone and amzn loses $10 or $15 my position would be in serious trouble. so:
* I moved my credit put spread to 180/75
* but I also added an upper leg 200/05
It was the right thing to do even though it had the wrong outcome. I repositioned and gave myself breathing room in the direction that the market was surely going to move the stock. The wrong thing to do was for me to break my conviction over NO NEW intelligence. I simply gave in to pressure!
The smarter thing for me to do would have been to just close the position as it was .30 positive. What's done is done!

This would be a good time for me to re-read my post about conviction (check it out if you haven't already)

GETTING THE WRONG OUTCOME: We all know what happened after hours yesterday. Amzn blew out the street's expectations and my trade along with it. Had I stuck to my guns, like I often preach trader should do, I would have been set. Instead, I doubted myself and joined the herd. Now, unless we get a disastrous retracement Monday or Tuesday, looks like I will be taking the 2.06 loss, lick my wounds and trade another day.


As with any trade there are risks but in this case the I am very comfortable with the dollars at risk. I always try to know and manage my risk; I ask 'what will I lose if the crap hit the fan in the worst possible way.' If I know the answer to this and am ok with it then I should be ok.


$AAPL $AMZN $bidu $SPX $NDX $RUT $C $GS $wynn $SPY $GOOG