Code. Money. Literature.

Last night I watched the schlocky film 10,000 B.C. as part of my research for life skills in the time of Dow 1000. Consequently, this week I’m going long mammoth pelts and have began careful study of the art of curing meat on a clothes line, Andy Swan’s optimism be damned.

I call this “investing in myself”. While I’m not accurate with a spear honed from a wooly mammoth femur, I did take some money off my wife and kids on a bet Saturday by draining a wicked three-pointer, so there’s hope that those skills may transfer to hunting.

On the off chance that we aren’t headed for doom, I did begin to start taking short money off the table, and established a couple of new base long positions.

What’s different for me this time was that in the past, when I’d close a winning position, I’d close it out completely; lately I’ve been staging my exits in chunks, trying to take profits off and keep the positions in balance overall. So far, it seems to be working out well. As I looked back over my monthly performances for the last six months, things seem to be going slightly better—less variance, and fewer huge mistakes. (For what it’s worth, here are the monthly numbers. Sep 2008: +27.4%; Oct 2008: +107.6%; Nov 2008: -7.1%; Dec 2008: +15.96% Jan 2009: -5.81%; Feb 2009: +10.71%; March to date: +19.8%. The great returns in September and October were due to flat out gambling and taking positions that were about 60-70% of my total trading account at the time. Better to be lucky than good.)

Started covering SRS

Monday I wrote some March 100 call premium on SRS on half my position. By Friday, this looked like a bad trade, with SRS at $111, but it feels like it’s time to get out, and I sold 1/4th of my SRS position at $104 on Friday for a 21% gain. I get the sense that its run is over (as @thehawaiitrader says: “$SRS takes the stairs up, the elevator down.“) Consequently I make be looking for an exit on the other quarter of it, and then see if the rest gets called away.

SRS is a trade that I did just about everything wrong on—too big of a position, held an ultra ETF for too long, averaged down. If I can unwind it entirely at these levels, though, it’ll end up being a fairly profitable mistake.

Closed out the Mastercard Put Failure

Finally got out from underneath this put position as Mastercard tanked this week. The right trade might have been to assume my timing was poor and let it fade some more, but from what I’ve learned, this was just trying to turn what might have been a 60% loss into a 36% loss, so I can use the money for better trades.

BBY Starts to Flame Out, and Pay Off

I’ve had a long running short position on Best Buy with a cost basis of around 26.40, but rather than adding to it as it showed strength on the way to $30, I bought puts. Going into this week I was sitting on a pretty good pile of profitable June 25 puts; on Monday I closed 40% of them for a 29% gain, then eased out of 30% of the overall position for a 45% gain on that lot, and took down 1/4th of the short position.

BBY is still my second biggest short position (SRS is first by dollar volume, and SPY puts are third.) I went to Best Buy this weekend and while it didn’t seem as empty as some of the home improvement stores I’d been to, the kind of stuff I saw people walking out the door with were fairly small ticket items. Keyboards and $200 video cameras. The DVD area is wasted space, the TV and appliance areas are empty, no one buying phones. The only area with anything going on was the video game section, which they’ve smartly moved to the back of the store.

Closed out NDAQ Puts

The other big short I had working, and perhaps the first trade where I showed discipline and awareness of the charts, closed out Friday for a 60% gain. I had a small position of NDAQ puts with a cost basis of $2.50 that went off for $4 as the stock dropped from the $24 range to $18.50 over the course of a couple of weeks.

Bought More SPY Puts

On the strength Wednesday morning, an order for Sep 56 SPY puts filled, giving me two separate SPY put positions (the other is Sep 64s) that are up 15% and 40% respectively. Beanieville had a great post on simplification this week, and in retrospect, getting rid of the exotics like SRS and limiting exposure to specific stock shorts might be a good idea, so these SPY puts are perhaps a better way to go with the flow as the market trends down.

Started Longs with AAPL and AMZN

Before Apple imploded late in the week, I bought some July 85 calls. Sentiment would seem to tell me I’m flat out wrong on this one, and that AAPL might not be a leader, but Andy Swan’s optimism gives me a moment of pause, and I want to be in some leaders if things turn around.

I’d been trying to get into AMZN for awhile, and finally entered a small position at 60. Although this morning, reflecting on things, as much as I love Amazon, how can anyone think we’ve hit a bottom in either the market or the overall economy if Amazon is still at 60? Won’t it have to be punished in a sustained way for some time? I went in thinking this was an investment, but now I’m wondering if it is a short term trade.

Other Positions

Still hold some of the initial INTC calls I started taking down last week. I’m less enamored with these, but it’s part of my Bear Rally Early Warning System (BREWS) and a buy on the dip kind of move. It’s weakening though, so my patience is getting thinner.

Keep Your Spears Sharp

If there’s one thing I learned from “10,000 B.C.”, it’s to keep your spear sharp. Both ends. The volatility is back, both sides are trying to punish the other, and in the course of a single week, both sides can claim victory. Stay agile.

In this week’s StockTwits for Idiot Retail Investors, I wanted to talk about postmodern investing.

Louis Menand had a great review of Donald Barthelme’s writing in a recent New Yorker. Early in the piece, Menand gives a lesson in the two meanings of postmodern. The first meaning of postmodernism comes from the belief that “modernism won” (i.e., “mission accomplished”) and that a postmodernism movement is a declaration of victory. The second meaning comes from the sense that modernism is over, and we’ve moved on to something entirely new.

I thought about these definitions quite a bit with regard to the market and the economy. In which sense does the whole investment ecosystem rising up around social utility services such as Twitter, StockTwits and disqus feel postmodern? It’s not as easy an answer as it seems.

First, we need a definition of what modernism is. I’ll define modernism in investing as the disintermediation of layers and the reduction of friction between investors and markets. It started with Schwab and the rise of the discount brokers, continued as discount brokerages drove down transaction costs, the progression in access to data from the Wall Street Journal through O’Neil’s Investor’s Business Daily and Bloomberg terminals on through to the AOL-era Motley Fool and Yahoo Finance, fueled by the market of the 1990s, cresting with the internet bubble.

Given that definition of modernism, you can think of postmodernism (in the first sense of “mission accomplished”) as what’s going on when social networks and investing intersect. Schwab began the disintermediation of the broker, the internet continued the process, reducing friction, the intersection of advertising models and the internet disintermediated access to market data, and sites like the Motley fool disintermediated the need for paid analysts and blew up the mystique around mutual funds. Modernism won, and now it’s time to see what’s next.

The second sense of the term would indicate that there’s something beyond that modernism, that what’s going on with social networks is truly something different, that it’s not just a continuation of those initial changes.

My take is that the first sense is a better fit. As transaction costs have fallen, and information has become more free, the last pillar is the demolition of the illusion of expertise.

What struck me this past week, reading the wide variety of wisdom available for free on the internet, is that the notion that anyone can charge for a newsletter or trading model or any kind of educational material for any significant period of time is over. Blogs and crowd-sourced financial services provide for free what paid portals and paid expertise did in the past.

Over on Gregor Macdonald’s site, I put it this way:

E.M. Forster: “How do I know what I think until I see what I say.” Your last sentence seems to convey the same sentiment.

I have a blog post that I’m working on that proclaims the death of the newsletter. My basic theory is that as more voices emerge, for every paying newsletter writer, there will be 10 up-and-coming analysts giving it away for free to make their marks, devaluing (in the long run) the paid analysts. This cycle will repeat, and names will continually turn over. The social filter will replace the editorial filter; there will still be value in finding the new and relevant voice instead of relying on the previously relevant established voice.

The good news is that the right voice at the right time, properly amplified, can capture value for the content creator, but only for a limited time before circumstances and competition displace it. The numbers are against any single content creator having a long run.

What may happen then, if you can’t amplify that value into other venues (e.g., books, paid media appearances), is that your last observation in the post also becomes the primary value to you, the author—that the clarity of thought of working in the open results in the production of personal clarity of action, and you end up profiting far more from the direct use of your better (and more honest) thinking than from selling it.

And that evolved into the eventual conclusion I posted the other night about the free content creators and people like Gary Vaynerchuk having to move from just producing the ideas to becoming the performers that amplify their free content.

With Cramer launching his VIP service, you see him on the wrong side of it. He’s a performer who has amplified to 11 who’s now running in the wrong direction. Instead of giving more away for free and focusing on amplification (can Cramer really go to 12, one higher than 11?), he’s attempting to cash in directly on his voice, which I guess is all a fading star can do. It’s time for some turnover. That voice has run its course.

When it comes to learning about investing and where to invest at any given point in time, cost-effectiveness for the consumer comes down to whether you can learn—and I mean actually learn—these lessons better and in less time from a course or subscription or book than you can from any of the bloggers and tweeters giving it away for free.

The challenge now is how to deliver the best stuff in a way that reduces the cost for the consumer. How do you quickly find the good stuff? We’ve got the reduction in friction on sharing ideas, we have crude tools for filtering, but how are we going to ride the wave and find the ever-changing set of experts?

StockTwits is one tool that can help…but there are others out there. If you’ve got any kind of entrepreneurial itch at all, you’ve got to be thinking about these postmodern investment problems and postmodern investment tools and opportunities that the StockTwits ecosystem is enabling.

Exciting times.

Week #8 Trades

Three trades this week. On Monday, I got averaged down on INTC July $17 calls, bringing my cost basis down to a little over 35 cents. I had a limit sell of a portion of the overall position which partially filled on Thursday at 0.50, for a 40% gain. My current INTC long position in the calls is about half the size of an average unit, and I may try to average down again as it gave back a lot of the gains this week.

On Tuesday, I established a small position in SPY September 64 puts which were up and down over the course of the week. I tried averaging down during the rallies, but didn’t get my price, so I’ll stick with the small position.

Finally, on Wednesday, I flipped FAS for 10 pennies, in a wild ride. On the short term chart, I bought in as it started to break out at 5.55, held it as it went to around 5.67, then rode it down to the low fives where I just about got stopped out, and finally settled for a 10-cent gain (even though later in the day it could have been a 50 or 60-cent gain.) Once again, messing with financials, day-trading, but learning. Unlike past failures, I did show a little more discipline here, but instead of an “F”, I’d probably grade my performance on that one as a D+.

Other Positions

I still have NDAQ and BBY puts that are slightly profitable, although I had sells in for those that didn’t fill during the week.

I should have sold my failed MA puts when the stock dropped early in the week, but didn’t. I’ll most likely punt those this week and chalk up the big loss.

Still long SRS, which I will most likely kick part of this week on any spike up. Since this has been my primary hedge (for all the wrong reasons) during January and February, I’ll need to replace it with more SPY puts once I take it off.

And finally, I still have a long-running BBY short that I’m about to give up on due to the stock’s strength during the turmoil of the last few weeks.

NPR’s “All Things Considered” aired a Radio Diary tonight about Rose McCoy, a member of New York’s “Brill Building” pop songwriting cabal of the 1950s and 60s. McCoy came to New York at the age of 19 with six bucks in her pocket and went on to have an incredibly prolific songwriting career.

The songwriting environment of that square block in New York was a hotbed of collaboration.

After work, many of the employees would gather at a restaurant around the corner, called Beefsteak Charlie’s. Soul singer Maxine Brown remembers that it was like a music marketplace.

“The place was hoppin’,” Brown says. “Writers, they would run over and pitch their songs. Just right there on the spot, start singing it. And the verse would be on a napkin, and he’d reach in his pocket and the bridge could be on a brown piece of paper bag … [A] lot of the songs that you heard back in the old days were sold right out of that restaurant.”

McCoy had teamed up with a songwriting partner, Charlie Singleton. They set up their office in a booth at Beefsteak Charlie’s.

“We’d write back there,” McCoy says. “People got to know us so well, they used take our telephone calls. We’d meet there every morning, 6 o’clock, and buy a little glass of wine for 30 cents, and we’d sip on that.

You can’t help but connect that to the entrepreneurial activity taking place in your average Starbucks today.

Hell, they even invented an entire company dedicated to bringing beggars (that would be guys like us who want money) and funding sources together on every street corner in America — STARBUCKS!

I am willing to bet that more deals are getting done at Starbucks than ever got done on the fairways, greens and tee boxes of the old boy network. Even at $4 for a freakin’ latte, it’s cheaper plus no sunburn.

—JLM (Jeff), via Howard Lindzon, via Fred Wilson

Collaboration, riffing, working together to create the perfect song, the perfect pitch, the next hit, the next killer app.

As the mid-60s approached, so did change:

The 1950s and early ’60s were the heyday of the professional songwriter in pop music. But in 1964, the music scene was about to change. That year, The Beatles had five of the 10 biggest songs on the Billboard charts. One was a cover of “Twist and Shout,” but the rest were their own songs.

“People like Bob Dylan, et cetera, start emerging [and] perform their own songs,” Bell says. “So they got recognition as a singer, but also a great writer. And literally I saw our industry, for want of a better way to put it, kick the songwriter to the curb, [and] Rose was just another songwriter.”

“When the singers find out they can write for themselves,” McCoy says, “they didn’t want to see your song. They wanted to write their own songs.”

As a result, the Brill Building songwriters had to find new ways to make a living. Carole King and Neil Diamond launched successful singing careers. Some became producers, while others left the music business.

Earlier in the day, I watched the Zapurder-esque video of Gary Vaynerchuk’s FOWA 2009 keynote speech:

Gary hits on a number of themes:

• “Twitter is not a marketing plan.”
• “Do what you love. Love your damn family and crush it.”
• “The people willing to get obnoxiously dirty are going to win.”

But the core theme he drove home was that the content producers no longer need the intermediaries. Kanye doesn’t need Apple, he could do everything he does from kanyewest.com. The democratization of technology and of distribution means that talent wins out in the end for those willing to get dirty and “crush it”.

What Vaynerchuk, Dylan and Diamond Have in Common

Yet in thinking over these two pieces today, I’m struck by the contradiction in Gary’s message. He’s obviously crushing it, speaking all over the country, pumping out Wine Library TV episodes like a maniac. If you’re a lone democratized voice creating content, do you see the parallel to the Brill Building era? It’s not just being a brilliant content creator, just as it wasn’t enough after the Beatles arrived to simply be a brilliant and prolific songwriter. The ones who made the leap and survived were the songwriters—the Dylans and the Neil Diamonds—who got dirty, crushed it and amplified their skill set to adapt to a new environment.

The logical conclusion then, as it appears to be now, is to learn how to perform their own content. To become not just a content creator, but the performance artist. Alignment of passion.

There are no doubt wine store owners and liquor store owners as passionate about their work as Gary, who could create content and ideas just as good, but without that passion to work hard and put themselves out there to perform, you’ll never hear of them. Vaynerchuk is the ultimate performer of his own content—no one else could pull it off or amplify it any better than he can. You can’t perform a “cover” of an impassioned Vaynerchuk rant. Content and performer and performance are inseparable.

If you’re creating brilliant content, and you want it heard, you have to become the brand. Maybe it takes getting into fisticuffs with a hated rival. Maybe you have to speak at 300 dates a year. Maybe you have to have the shameless knack for self-promotion. Whatever it takes.

Content is just the start. Focus on building value and intellectual capital first, but realize that at some point you’re going to have to create the social capital, and then turn that social capital into flat out live performances. Keep this in mind when you have heady thoughts about democratization of voices, and the rise of the masses.

Rose McCoy is 86 now, living in Teaneck, NJ, about 25 miles away from Gary Vaynerchuk’s wine store. No word if she’s a Jets fan, but if anyone has the passion to turn her into one, it’s Gary.

This week was mixed, marked primarily by a desire to get smaller. I started the week by closing a couple of bad long positions I had entered the week before while anticipating a bigger rally, and ended the week covering a ton of successful shorts. I’ll start with the bad, end with the good.

Rhymes with Ass and Ack

Tuesday I closed out two of my failed trades. The week before I bought FAS and Bank of America BAC May 10 calls as long insurance against my massive shorts, playing the news cycle. What I failed to pick up early enough was the depth of the outright hostility there was to the bailout news of the last couple of weeks. FAS ended up being a 38% loss; BAC a 52% loss. With the discipline of small position sizes, this hurt, but not fatally as it might have hurt later last year when I was routinely taking positions 4-5x the size I should. The silver lining is that I acted decisively Tuesday morning and avoided further huge losses. As someone still saddled with a buy and hold mindset, this was a bit of a breakthrough to actually cut and run when the tape was so clearly against me.

In examining this, there were several problems, and several points of hope. First problem: the initial idea was wrong. I had seen several times that Congressional action had temporarily revived an industry, but this time it was different; the looming threat of nationalization gave no bounce. Second problem: execution of the idea. Rather than go into something broad (like the FAS), I traded too much. I had to hope that there was a secret surprise in there for BAC. That’s just gambling. I would have been better off trying to ride FAS up alone. Complexity kills. Finally, had I maintained some discipline around stops, I could have saved some of the BAC loss. What started as a quick trade (averaging down too early) turned into a longer duration trade, and I was adrift. Proven wrong, I at least acted decisively when it was clear I was wrong.

Conviction Closed

One of my long underwater put positions, US Steel (X), finally got back above water, and I quickly pulled the trigger, selling all calls for a 21% gain. All the profit came from the puts I bought when I averaged down. Had I waited another couple of days, I could have increased this gain to around 35%, but I was happy to salvage the bad initial buy at the transaction cost.

The lesson I learned from this one is that there are different classes of people I follow on StockTwits. There are those who generate good trend ideas but whom I may not want to treat as signals for entry points (e.g., BuyOnTheDip on this X call, although he falls into the next category on a few of his recommendations.) There are those who generate ideas and make their entry and exit criteria clear from an intraday perspective (e.g., UpsideTrader and Mandelbrot at TwitterReality and fortune8 who uses a more Socratic method—complete with reinforcing visual aids of what a double bottom looks like—of teaching the method behind his entries and exits). And there are those who also make the most sense to listen to if you’re at your computer while the market’s open—again, UpsideTrader is one of the best.

So one of the new elements for my trading and following checklist is to classify the source of the ideas based on these characteristics; is the idea recognition of a trend that just hasn’t taken hold yet, or does it come with a source who gives a clear idea of when to get in or out?

Getting Clean on Tech

My other goal for the week was to close out my tech put positions as they moved into profitability. After spending a long time in the stratosphere (relative to where I thought it would be after the Steve Jobs announcement), Apple (AAPL) came back down to earth, and I eased out of those puts over two days for an overall 8.5% gain. Palm, which I had also averaged down on, went out Thursday for a 18% gain. These exits seemed to work out okay; both recovered Friday, so I might have been able to get a better day trade price, I’m happy to be sitting with the cash now.

Back into INTC

I’ve been watching INTC for some time. $14 a share didn’t seem sustainable, but $12.75 didn’t seem fair on the downside either. With an RSI below 30, it seems way oversold, so I finally bought some July 17 calls Thursday. The technicals don’t look that strong, and I may buy some more if they strengthen, but my goal with these small trades is to be satisfied with 10-15% gains.

The main reason I’m in it, and why I dumped my tech puts, is that from the last few weeks, tech has been surprisingly resilient in the face of all the bad news. Not quite immune, but poised to lead us out of this mess. I want to have a few quality longs in this space, since I see them as bellwethers and ways to profit quickly on any false bear rallies.

Tried My First Twitter Reality Recommendation

Picked the wrong one, but after seeing Mandelbrot’s record related to story stocks, I tried one experimental trade by buying AMED with a bid below the expected open on Thursday, catching it at 49, but getting out Friday at 48.60. In the past, I might have held this longer, but the conditions for those story stock trades is to get in and out on the same day, so I didn’t have any reason to hold longer than the extra morning. I may try this again, but only when I see futures being up and the stock recommendation hitting something I’m more familiar with.

SRS: Botched, or Not?

My cost basis on SRS is around $86; I’ve been selling premium on it for some time, and watched with glee as it climbed slowly back into the 80s. When it was in the 50s, I had sold some Feb $86 call premium at a fair price, thinking that if I got taken out, I’d at least have a couple of months of premium in exchange for the trade. On expiration day, SRS stood at around $82, and I considered buying back the calls to close to keep the shares. In retrospect, the right move might have been to buy back the premium and dump the shares entirely, since it closed at $72. I still haven’t decided yet whether to just write this one off, write some more premium, or let it play out as commercial real estate hits further pain points over the course of the year. Psychologically, I feel the need to make a profit. Classic irrationality. The shares are up 40% over the last couple of weeks; they make no sense to carry overnight at any time. Yet I keep doing it, rationalizing it by selling insane premium and bringing down my cost basis. There has to be a name for that. Reverse Martingale?

And the Big Winner: FAZ

As part of my foray into the financials, I started out with a buy of FAZ at $45 on February 6. Thursday it climbed to the $70s and I decided to take the money and run, selling at $71 for a 13-day, 57% win. Had I waited another day, I might have sold it at $81. The weird thing is that it must have sold after hours on Thursday—looking at Google Finance, it appears that it never really got to $71 during the day. Given that it closed after hours Friday at 70.99, I consider the exit okay. It could have just as easily gapped down Friday as up.

Who I Started Following this Week

I started following Michael Lazerow this week; I really enjoy his blog.

I’m dumping Google for Amazon in a couple of ways, and here’s why:

For the past year or so, I’ve had a Google AdSense block over there to the right. Not because I had illusions of making any money, but to get a sense for how it worked, and what typical click-through rates are on a personal blog. As the focus on my posts moved away from the Code and Literature of the blog’s tag line, and more to Money, the ads settled in on a bunch of penny stock pushers. No one clicked on anything anyway, and in the course of the experiment, I netted little more than a postage stamp’s worth of value.

Consequently, I’ve dumped the AdSense in the sidebar and limited my commercialization to book recommendations. For my kind of site, I think this works a lot better. And my decision to do so tells you something about the two companies.

Fat Head Aggregators vs the Filtered Long Tail

Currently I’m reading Howard Lindzon’s new book, The Wallstrip Edge (full review later, when I finish). I’m about 1/3rd of the way through the book, just past the part where he describes experiences in finding trends. And the trend I see here is not only relevant to monetization of blogs, but to the underlying stocks as well.

Google is great for monetizing commercial eyeballs. AdSense works not for the long tail, but for the “fat head” aggregators and ad farmers who can pull in 1M page views per month, or really narrow their focus to attracting search traffic on a topic rather than building an audience. Facebook’s click through rates, which are reported to be notoriously low (in the 0.04% range), in fact may be more typical than anyone wants to admit. Like so many of the faith-based schemes that have been exposed in the last year, AdSense profitability and conversion ratios seem to be overstated. Not good for the GOOG. A thesis I’m working on for a later post is that you can find things that are “too good to be true” and profit by avoiding them. As the web matures, I suspect that the AdSense ecosystem, which for much of the decade was too good to be true, will grow far less attractive monetization option.

Amazon, on the other hand, caters better to the long tail, to those finding trusted voices, and to those building audiences.

The trend I see (confirmed by observing the many-to-many relationships on Twitter, and by the dynamics of StockTwits as it relates to trend following is that repeated interactions lead to trust, and so much commerce—finding things, finding what you should be interested in, learning what’s best—are enabled and made more effective by the social filter. The actions taken due to these recommendations results in real commerce taking place; a “real” transaction occurs as opposed to a trivial payment for shifting attention.

Trust the Filter; Monetize the Trust

It’s no wonder that a trend rider like Howard is investing in StockTwits and Amazon; it’s a coherent theory that makes sense. Trust the filter; monetize the trust.

So I’m avoiding Google and looking to buy Amazon. Put another way (inspired by a line in Howard’s book), I’m more confident that Amazon is the next Amazon than I am that Google is the next Google.

In the interest of full disclosure, I have to cover my bad trades as well as my good. Anyone can crow about their winners. Here’s the anatomy of yet another bad set of trades I closed out today.

At the end of the first week of February, I went long FAZ at $45. At this point I’d been piling up shorts into the rally and the ever-declining FAZ seemed to be ripe for a turnaround. After holding over the weekend and watching the futures turn up in anticipation of the stimulus package, I got nervous and decided I needed to hedge long. As FAZ dropped to about $40 last Monday, I actually went long FAS and bought some BAC May $10 calls. The lame motivation there was that I expected some extreme daily volatility that would end with the financials continue their rise up, so the byzantine logic was that I’d have a chance to kick a FAZ rally as doubt rose, then cash in on the rebound when the stimulus details came out. I couldn’t day trade during this period, so the complexity came from trying to lock in trades with limit buys

The flaws (more like a comedy of errors) are compounded: being long and short at the same time with vehicles you shouldn’t carry overnight, buying derivatives on a broken bank, adding complexity and too many moving parts to a theory that could have been greatly simplified had I picked a single trade that was likely to work, believing that there might be something in the plan that the market would like. Traders talk a lot about “context” and the context that helped make me stupid here was that I was way short and the bulls were making noise like this could be a significant run that I had to hedge. Just got on tilt.

So BAC fell, as did FAS. The 11% loss in FAZ that I had when I added FAS was effectively baked in with the hedge, but as the week went on, the ETF sawtooth effect compounded the problems. Rather than save face immediately and admit the bad trades, I tried a couple of times to sell premium on both FAZ and FAS (out of the money) but didn’t get my ask. After averaging down a little bit on BAC, I gave up and spent the weekend analyzing my trades from the last five months.

I learned that while my winners outnumbered losers by almost 3:1, the average loss for a loser was about 33% greater than the win on a winner. Since I give a lot more play due to the volatility of the last several months, it didn’t totally surprise me, as I had a couple of big losers. Rather than set tight stops (which I may eventually come to—since it’s the conventional wisdom), I do need to execute a lot more discipline and cut my losers earlier.

Today I followed through. With the futures down big before trading, I tried to dump my FAS pre-market (not recommended) but only got out when the market opened at $6.79, saving another 11% in downturn over the $6 close (but locking in a painful 36.7% loss overall). I dropped the BAC calls next, dumped for a painful 50% loss. FAZ rose 24% today (and is up 50% from when I bought the FAS), so I’ve worked through the FAS loss and started in on the BAC loss.

Tomorrow (Wednesday), if we’re down, I’m looking to cover my tech puts (PALM and AAPL) and buy some INTC calls (RSI is really, really low, so looking to wait until the stock is in the $12s again), but let my other puts run (NDAQ, X, MA, BBY). As I type, the futures are up, so I may have to start plotting revenge for later in the week.