Trading Diary: Oct 24th – Oct 28, 2011

by Dan October 30, 2011 11:12 pm • Commentary

Last week as detailed in the previous post “Weekender” was a one way street for making money from a macro level…..At the moment I am a bit more focused on the micro and have decided not to battle such things as index, currencies and the like…..

So I have focused my attentions on individual stories like NFLX, AMZN, BIDU, HANS, MS and GS.  Aside from day-trading in some liquid etfs, I did not put on too many positions to play the Euro summit….

I got a lot of questions from readers about my activity, but I did not have a ton of conviction so I sat on my hands….remember preservation of capital is the name of the game and I don’t just throw stuff on for the sake of it….I generally remained cautious and did not try to play the market from the long side…I started with the thesis that the markets had clearly anticipated what would be an outline to a solution to the European debt crisis and I wanted to fade that…..I generally did that with short etf positions using very tight stops….on more of a micro level I started the week by trying to pick on the brokers (GS and MS) as I felt that any disappointment in the markets either by a “deal or no deal” would cause significant weakness in these names that have massive rallies off of the recent bottom.

Even-though the short term trades in GS and MS were losers by week-end, they weren’t always and I think it is important to take another look at how I traded them the following day when the stocks were both down almost 2-3%……the trade management, helped to mitigate losses and in some ways had the potential to dramatically increase my odds of success (read here).  By the end of the week I wanted to make a further low premium play on MS that has better odds of success after the massive run the stock had the previous few days (read here).

NFLX was a great trade into earnings if I do say so myself….I took the long way home by trying to press the short after its already disastrous previous couple months…….I think it is also instructive to read through my updates and see how I traded what could be a very difficult structure around an event into expiration (read here).

I also took advantage of some quick gains in HANS as the stock cratered on Tuesday, on the shear weight of the stocks recent rally (read here).   Readers of the site will see that I take profits when I can and especially when they come quickly…..NormallY I like to do what I did in HANS, if i can take off half of the position for what I paid and let the other half ride, I will generally increase my odds of success.

A theme that I have pressed over the last couple weeks, even in the face of the explosive rally has been to short high-flying tech names that were dramatically outperforming the overall markets and trading near all time highs as they headed into Q3 earnings…..I did this very effectively 2 weeks ago into IBM (read here) and AAPL’s (read here) reports and was hell-bent on doing it ’til it stopped working….Last week I was 1 for 2 in this regard….I had a huge winner in AMZN (read here) on the short side and finally a loser in BIDU (read here), as I got the direction wrong……I think for readers of this site it is important to note my conviction level as I head into ideas…..This really holds the key to my sizing.   Also, I think it is important to note that in the case of BIDU, I was pressing a strategy that has worked on 3 occasions in the prior 10 trading days, not counting my short trade in NFLX into earnings… SO the point is I was playing with some found money….and recognize the longer I try to do this the greater chance of failure on the next one……

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