StockTwits for Idiot Retail Investors: Week #2

STFIRE: Week #2

The third installment (and second week) of StockTwits for Idiot Retail Investors turned out fairly well.

It started rough. I’ve already recounted how I sat there full of shorts Tuesday and got itchy and blew a Citi short for 27 cents. (Turns out if I had held it all week, I would have made 1.50 per share.) I’ve already talked about one lesson: don’t go against type. The second lesson here is that I’m not at all comfortable shorting and taking a loss. I have far less tolerance with rapid losses on shorts than I do with losses on options, which I let play longer. It’s probably due to my upbringing in this volatile market. Way too itchy.

Then Wednesday came around and I had four limit sells in that fired in the first few minutes of the market being open. First, my $COST puts went off at 2.90 for a 38% gain over a 12 day holding period (Jan 2 through Jan 14). Thanks to @BuyOnTheDip for that tip (turns out from the StockTwits $COST page, he got out Wednesday also.) Next, the $BBY puts sold for a 22.6% gain over that same 12-day holding period. I’m still short $BBY common, but on the previous rise to 30, rather than averaging up by selling more shares short, I bought June $25 puts. Then, the $AAPL puts I’d been holding and averaging down on since December 8 sold for a 13.2% gain.

In retrospect, I sold the AAPL puts too early; after the market closed that very day, the Steve Jobs health announcement came out. I left a lot on the table by closing out the April 100s.

The final trade Wednesday was closing out a huge June 70 SPY puts position I’d been carrying since last year for an overall loss (although all the puts I’d bought between Christmas and now produced nice profits.) While the early large lots were down 60% and 33% respectively, the last two smaller lots were up 60% and 14%. Overall, however, a 20% loss on a position size and duration that got out of hand.

What made the $AAPL and $SPY sells so painful is that had I been able to follow the market more closely that day, I could have done better—I sold anywhere from 6 to 24 hours too early. I can’t complain, though, since there were a lot of positives there, and I closed out some earlier mistakes, raised my cash position significantly, and got smaller. I could actually breathe more easily.

You see the issues here? Stay home on vacation, get itchy, over-trade and lose; do the day job, have all your profit points taken out too early, miss more upside. But who can argue about erring on the side of profit?

A Quick $INTC Win

As the market got crushed on Wednesday, a trade in $INTC April $15 calls went off at $0.80. I had tried to make the trade the day before, but didn’t get my price, and ending up catching the dip Wednesday. The calls dropped further the next day and I placed an order to double down at $0.60, but it didn’t fill. Finally, Friday my sell at $0.95 filled near the high-of-day for a two-day 18.75% gain. Nice. For the record, I like buying INTC in the 12.50-13.00 range, and I sell premium as it closes in on $15. Two stocks I don’t bet against are $AMZN and $INTC. I feel much more comfortable buying calls or going long, or selling covered calls at the peaks than I do going short or going with puts. ($AAPL, on the other hand, I can play either way.)

BOTD’s Guide to Shorting

BuyOnTheDip has been crushing it lately. Most recently, convinced by the stunning simplicity of his consistent yet perhaps engineering-unaware guide to shorting (i.e., planes are bad, planes are made of STEEL, therefore short $X) I bought US Steel July $20 puts for $3.10. I could have sold out fairly quickly (and probably should have) for a one-day 15% gain, but held tight because by that time I’d gone from a huge short bias to a neutral to long bias, and wanted to retain some kind of hedge. This position is still open. I’ll look to cover fairly quickly here if it does drop again (e.g., $X at 27.50 or so) but the July date gives me some time.

I tend to go with options six 5-6 months out, which I’ve observed is much longer than most of the people doing options on StockTwits. Since my style is to hold for longer periods of time, I need more leeway.

Trades I Didn’t Pull the Trigger On

I really wanted to get in on FAZ earlier in the week based on Fortune8’s comments last weekend about it being a fairly good buy at the $42.50 level. Only problem is that I was trying to get too cute getting it at $42 or $43 and missed getting in, and didn’t feel like taking a chance at $45 or any of the other higher numbers. Psychology is weird. Totally missed out on a large gain.

Mandlebrot had one analysis of $DBP that I thought might mean something, but I looked at the chart and using Fortune8’s 4-8-21 guide, declined to get in. While the trade would now be up, I already have a position in $DGP, so there wasn’t enough reason to try. But I’m starting to dig what @mandelbrot is doing.

Up Next Week: Check out the $PALM short

Last week I talked about the possibility of $AAPL falling and $PALM rising on the Pre announcement, and how one trade might be to rid myself of the $AAPL short as it drops and enter some kind of $PALM short position. I held off this week because I don’t have a feel for $PALM yet (and because the 4-8-21 signal isn’t close to being set up), but I think $PALM fails here in the long run. I don’t know where they are on the hype curve and therefore don’t know how high they can go, but in @upsidetrader’s parlance, I’m watching this one like a peregrine falcon.

Selling more $SRS Premium

Last month, with 18 days to go, I sold $SRS Jan 70 calls on half my underwater $SRS. Athough SRS spent quite a bit of time late in the week over $70, those calls didn’t exercise. I’ll do the same this week sometime with the Feb calls. The cool thing here is that I can sell them for enough premium out of the money that I can still get around a 5% gain for four weeks on my original investment, and ensure a small gain on the original if it gets called. This is making lemonade from lemons, but a gain is a gain. Selling $SRS premium late is a wonderful thing, like finding someone else’s change in the vending machine. With futures looking to be down tonight, I may wait to see how far SRS rises to see if I can collect enough premium at a strike price high enough to guarantee a gain on the overall trade. This position is quite a bit bigger than what I should be holding based on portfolio size, so I don’t mind taking a smaller gain to get a little less exposure.

Watching $AAPL and $INTC

The Steve Jobs announcement was one shoe dropping; but surprisingly, the stock didn’t fall as much as I expected. Based on the news flying around Twitter this weekend, the situation isn’t any clearer. My take now is that rather than settling into that $55-$75 range immediately, we’ll see a narrower $75-$85 range, trending negative, until closer to summer, or until Jobs just flat out shuts it down. I see no upside surprises that carry us through the year. They’ll do great in the long term, but I’m not squirreling away any until it sees the 60s (which I think it will, based on overreaction to and misinterpretation of news that has no fundamental bearing on their future.)

I don’t have any entry points in mind for $AAPL, but I will start moving out from the April options to a later series because my timing sucks. It’s stupid of them to try to pump up the stock until they get past this year.

I’m watching INTC as well, to see if there’s a chance to reprise the trade of last week.

Where I Stand Now

Still long $SRS (with a position about 4x as large as it should be based on my trading portfolio size.) Long $DGP (missed selling for a nice gain when @sorenmacbeth hinted he felt a top at about the same time I did). Long $X puts. Still short $BBY (I’m holding out, will look at averaging down with puts if it pierces $30 again). Still short $NDAQ (it was briefly a teenager this week, but I kept trailing down to maintain more shorts—looking for $19 or less). Pile of cash, needing a few longs to hedge another rally. Maybe something pre-market Tuesday for a single day pop?

New StockTwits I Started Following this Week

• @brasil61 on finz.tv had a great post earlier in the week.
• @tradefast over on Character 141 Best. Site Banner. Ever.
• @mandelbrot’s Twitter Reality is becoming a regular read for me on Tumblr

This week

Later on this week, I’ll post “How I Trade” to give more insight around how I manage to take advantage of StockTwits and all this volatility without being able to day trade.