February 8th, 2009 — investing, stocks
Walking into the Propeller Blade
Rough week to be short.
This week started out with the predictable selling into the rally, selling Feb $15 call premium on half a the INTC position in my hold account on Wednesday.
All through the last 6 months, it’s felt like the right thing to do is run against the trend, to run into the burning building instead of out of it, and to avoid friendly trojan rallies bearing gifts. And to a large degree, it’s worked out. Even in the darkest hour, the bear would come through and save the short trades, and buying quality companies beaten down turned out well.
This past week, I did the same, but the usually queasiness felt a little deeper than normal. The bull sentiment seemed broader, and I felt like I ended the week like someone finding out too late that the game is musical chairs and the music stopped a couple of days earlier. For the first time, I realized how attentive and agile you have to be to enter these short term positions.
The next two or three weeks will tell whether limited (but focused) attention is enough to stay profitable, or whether it really is a full-time daytrader’s game.
With that, the rest of the recap.
AAPL: Somebody Moved My Swingset
I twice averaged down on AAPL July 80 puts on Wednesday and Friday as it flirted with $100, and sit now with a cost basis of 6.65. I haven’t had a bad trade on AAPL since I’ve become more active since September, but this may be the first time. Currently down 20% with a position size that is about double what it should be.
Financial Hijinx
After Visa (V) reported earnings and Mastercard gapped up, I took one small sip of puts at a lower price, but didn’t average down further when Mastercard itself posted better earnings. Overall, these are still down a little over 40%. I need to just put this one behind me.
When the FAZ hit $45, I bought some. Another ridiculous move when Swan and others are calling for FAS to be the one to rally. FAZ is going to open Monday in the mid-30s, it appears, and my string of poor timing on financials continues.
What I plan to do this week is look at BAC, BAC calls and FAS to hedge these financial positions and buy time. The StockTwits sentiment seems to be putting forth this notion that BAC could see $10 again in the short term, which would help the financials overall, even though this could be another C situation where the boost is just a little exuberance due to government intervention and a reprieve before it continues its drop to 3. If it plays out right, then I could see some benefit from a BAC rise, then switch directions again to get out of the financials altogether.
Finally into PALM
Finally snagged my long awaited Palm May 5 puts after executing on my Friday plan. I’ve decided to go with a shorter leash here. While I still think they suck for the long term, the second wave of Pre buzz seems to be coming. Ultimately, I stand by the notion that after everyone tries the pretenders, they’ll come back to the iPhone. However, the timing is what may be off.
X Marks the Failure
Still on tilt, I averaged down on X puts. Not a good idea when the government is getting ready to dump a bunch of money into things needing STEEL. US STEEL. Got no long term conviction here, despite how I felt earlier in the week.
Trying NDAQ short again
I think NDAQ is primed for a fall, and as it crossed $24, I bought some more puts. It’s a laggard and I would expect that if we do see a termination to this rally, it’ll be one of the first ones to drop. But it indirectly increases my negative position on financials, so I either have to get hedged or get smaller.
Buh-Bye: BBY Puts
Tried averaging down on BBY puts into the rally, but despite Best Buy touching $30, the order never filled. Along with my NDAQ puts, this is the short I feel most comfortable with. I may sit this one out awhile, but will look to average down if the optimism just gets stupid.
Other Stuff: Position Sizing
Last night I ran across this fairly good thread on position sizing after looking around for more info on the concept of “optimal f”. The first couple of pages are worth a read as the debate goes on about the Kelly criterion vs optimal f as maximizing returns based on adjusting position size. I’ll digest this some later, but it ended up being a good practical introduction to what’s involved, like whether you want to tune position size to the maximum downturn you can stomach, or to reduce your risk of ruin.
One of the comments contained this down-to-earth simple heuristic for position sizing:
The idea that money management is a mysterious and complex issue is proliferated by books like this. I can sum up effective money management in two steps: First take your worst case loss scenario, which will be based on a run of lossses with a less than one percent probability of occurring, as calculated by your expected win/loss ratio. For example, if you reasonably expect to win 40% of the time and lose 60% of the time, there is a less than 1% or “worst case” probability, that you will see ten losses in a row at some point in your trading (this may look like hard math but the calculations are actually grade school level). Next, determine your max desired drawdown. What’s the biggest hit you could possibly stand? Ten percent down? Twenty five? Fifty? Let’s say you are moderately aggressive and able to deal with a twenty percent drawdown without losing your nerve. Divide twenty percent by ten, and you see that your max allowable risk is 2% of your account balance, including calculated slippage and commissions per trade. If you can stomach a 40% drawdown you don’t risk more than 4%, and so forth. Simple, straightforward, no hidden gimmicks, gizmos or geekspeak. The only other bogey you have to deal with is the once in a blue moon nasty price shock that blows your stop to kingdom come (a simple and emphatic argument for less risk per trade, not more).
The one thing it helped me remember is that position size isn’t simple; separate positions may in fact be representing the same thing (e.g., my MA puts and FAZ positions are redundant to a certain degree; MA puts themselves relate to beliefs about consumer/retail, etc.) That kind of overall view of relationships between positions gets lost when you are listening to the StockTwits stream and evaluating opportunities. If you’re not careful, you can end up with a collection of positions that all fall together, or a single “theory” that ends up with a too large bet size on it. I’ve been lucky so far, but I need to add this basic macro overview to my evaluation criteria.
New to This?
If you’re new to this blog, and disgusted by my amateurish week, check out some of the previous posts in this series when things looked a little better:
February 1st, 2009 — investing, stocks
Quick post, light on the analysis. Too much time Superbowling. I also spent a lot less time tracking the market this week due to a lot of other commitments, so this one is light on the StockTwits analysis. I’m kind of settling in that it takes about four hours a week just to do the normal research and trading work, and at least another two hours of actively following the StockTwits community to derive value, validation and ideas.
INTC Win
Closed out a long April $15 call position in INTC early last week for a 36% gain. I had initially entered with a lot of calls at .60, doubled down after a drop to .50 for a cost basis of .55, then sold it all Tuesday for .75. I might have been able to let this run a little longer, but I think I ended up pretty close to the optimal position. This is the second week I’ve flipped INTC calls for gain while being net short against the market in my trading account. With INTC closing at 12.90 Friday, I may look to go back to the well one more time, with the April 15 calls trading at .49 now, I will probably stake out a small position with a limit buy.
The Good: AAPL and BBY Puts
I also went with AAPL July $80 puts this week; they’re slightly up on the week (about a half-percent). I almost was able to average down. The Best Buy (BBY) June $25 puts I picked up at 2.50 are up 14% as of Friday…these are the ones I’m going to let run a little. They represent an averaging down on a core short BBY position (which is still underwater). Now that the big game is over, it’s hard to see what’s going to drive business for BBY until next Christmas.
The Not So Good: X and MA
My US Steel (X) puts are not doing well. I heard about a huge slump in Asian manufacturing late last week and thought that might be enough to take it down in sympathy, and it did recover some of the rather large loss I’d already incurred. Cost basis on July $20 puts is $3; the puts are trading at $2.45 now. I don’t have a lot of conviction around this one, so getting out at even money or a small loss may be the best course.
A few days ago I posted why I don’t like credit card companies. The basic premise: they’re a business that really works against their best customers, they’re exposed to economic downturn, and they’re a necessary evil. So I went with Mastercard (MA) July 115 puts which promptly got hammered and now sit down 6.7%. Discover Financial Services (DFS) might have been a better one to bet against.
In general, I have not faired well with any of my financial company trades, being wrong on the timing at various times with C, WFC, JPM and now MA, losing about 4 times with 2 wins. This is compared to a rather remarkable winning percentage with AAPL, INTC and AMZN. The sample size is still small, maybe 12-15 tech trades to 5 or 6 in the financials, but my sense seems to be stronger sticking with AAPL and INTC. Consequently, it would take a crazy DFS price before I’d look to add another position. I haven’t given up on MA yet, though. The financials are tough for me because the fix is in, so you have the government putting in all these short term measures which stretch out the time it takes for gains the be realized, while not providing clear opportunities. Ironically, the government interventions seem to introduce more perceived volatility than they take out.
The Missed: PALM AND SRS
I’ve had this standing order to buy PALM May $5 puts for about a week now, and it has not filled yet, even though the spread has come down to put my bid in contention. I’m holding the line on this one; I think if PALM hits 8.50 (or if volatility increases) I may be able to fill this, but I fear now that these puts are too thinly traded to be a good investment.
I didn’t buy more SRS when it hit $49, nor did I sell more premium when it was in the $60s. I could do either or both this week, depending on how it goes. I’m really liking my long term prospects on SRS now; the buzz I pick up around how this recession is progressing leads me to believe that the commercial real estate domino is teetering. Hard to explain this intuition or pattern; it’s almost a deja vu feeling around the talk 2-3 months before some of these other massive failures occurred, only this time the early warning system is around commercial real estate. Consequently, I’m going to continue to hold SRS and sell premium on half of it on the way up. If we get an SRS eruption, this could be a huge win. I’m very interested in buying more on the next mini-rally of the market and if it drops into the 40s again. I know leveraged ETFs suck, so if there’s a better way to do this, let me know.
January 19th, 2009 — investing, stocks
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
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.
January 11th, 2009 — code, contest, crows, investing, stocks, twitter
StockTwits for Idiot Retail Investors: Week #1
Okay, one week into my StockTwits experiment and two trades closed out.
Closed out about half of $NDAQ exposure
First, despite @alphatrends‘ chastisement expression of concern (see my mea culpa for why chastisement was mischaracterization) in last week’s comment thread about not paying close enough attention to his reportage, I managed to turn that failed trade into a good trade by selling all my $NDAQ put options on Thursday’s drop for a ~24% gain. In at cost basis of $2.47, out at 3.10.
The funny story here: I got props from @howardlindzon for the trade, but he said it was too early, teenager:
Only I spent half the day incorrectly thinking he was calling me a teenager. I prefer grasshopper. Or idiot retail investor. I was chagrined. Damn, I missed the insult @howardlindzon day earlier, when I wanted to give him crap about his inability to use apostrophes appropriately in his tweets, and here he was, bagging on me bailing out too soon. Schvitz-behavior-critiquing mofo.
Then I realized about lunchtime that he was talking about $NDAQ as being a teenager (meaning: eventually trading in the teens).
God, I’m a dork.
So I’m still sitting on my $NDAQ short with a cost basis of 23.50. I tried closing it out Friday at a $21 bid, but it didn’t hit. I’ll let this one ride, teenagers.
Sold Some $SRS Premium
Okay, this one worked out—sorta. I sold calls on half my $SRS position. The half (lol) with the $60 cost basis. $70 calls at $1.95 premium. My overall cost basis is $86, so if this gets called, I’m okay (although my cost basis will rise on the overall position to $101 counting these profits.) Not a huge position, so not a lot of premium, and not a lot to write home about.
The one thing I heard this week that intrigued me (on NPR’s Marketplace): commercial property owners are proactively giving retail tenants lease discounts in order to keep them as viable lessors. One example was a top-down mandate to a commercial real estate concern to slash in-progress negotiated leases by 20% to try to keep the retailers from folding. I’m not smart enough to know the best way to play this. It seems like there’s some long-term arbitrage opportunity here. It feels like this is a case of “we all go down together” and the play is to short $RTH and go long $SRS, but I haven’t thought through the game theoretical issues here. Intuition says that it is $SRS that gets hosed no matter what. They lose either way. They give concessions, and margins go down; they don’t, and retailers bail and close stores and they hurt. So despite being way underwater on my $SRS position, I’m liking my 5-6 month chances on turning this one around. The commercial real estate industry is panicking, and they’re counting on retailers of all people to save them. Show me some consumer sentiment and I’ll cover.
In other news: $COST, $AAPL
I just about covered my $COST (Costco) puts this week. They’re good to the tune of about 22% on paper, after Wal-Mart’s fade on Thursday. I’m letting these run a little bit more. While I haven’t disclosed position size yet on any of these trades (waiting for some of last year’s trades to close out before setting that up), if $COST drops to around $48 this upcoming week, I will bank a 45% gain on the puts and the profit will be roughly equal to my $NDAQ put sale this week. This is about 11% of my trading account (and the trading account is in turn is about 16% of my overall brokerage position), so you get the sense of how I view a lot of these trades as tuition in my learning process. In the big picture, I’m trying to stay too small to fail.
I’m still negative on $AAPL with the puts (April 80s at 16.86 cost basis) despite my household buying four $AAPL products over the holidays to the tune of about four grand. Win or lose, I’m going to need to close out this position soon due to the time factor. Right now, I’m down about 6%. While in the long-long term I’m bullish on $AAPL, in the short term I believe it is range bound between $80 and $100, with all the trends pointing to it hitting $65-$70 before it hits $110 (based on lack of transparency around Jobs’ health status). If you’re buying stock for your kids’ college fund, go long. If you’ve got a 12-month time frame, short it north of $90. They have quality management, they have an incredible coherent strategy and management team (second only to $AMZN), but they have the problem in 2009 of a down economy (which will cause them to hold back major innovations) and the doubt around Jobs health. At some point this year, all the bad news will be out (it’s not yet) and AAPL stock will fall and then you can safely load up. Just not at $90. (I expressed similar sentiment in the comments over on Fred Wilson’s blog, with additional info on $GOOG. Great post and comments all around.)
On this trade, the time factor is getting me, so I will look to cover soon and will take whatever profits I can find should it drop to the $85-$86 this week. Hoping for lots of volatility prior to expiration.
What I’m Watching This Week
If you want my play of the upcoming week, it’s going to be this: let’s assume that $PALM ascends another 10-20% Monday/Tuesday based on the announcement of its new Pre platform. And let’s say that $AAPL falls 5% because folks think it’s a zero-sum game and the iPhone is hurt because of this. Then then trade is to cover your $AAPL short on the dip and immediately flip into a $PALM short (or put) situation. I know jack about technical analysis, so I can’t tell you about support, but I sure like $AAPL’s management over $PALM’s, and it should be pretty straightforward to know who the platform winners are going to be. $AAPL and $RIMM we still talk about in a few years; $PALM is just delaying the inevitable. There’s maybe only a 1 in 5 chance this will happen or that I’ll actually go through with the trade, but it’s one thing I’m watching. I like to trade overreactions and irrational exuberance, and any love of $PALM to me oozes irrationality.
What I Owe
I really need to give you the blow-by-blow of my September through December experiences in the market (including my schooling in $SPY and $USO calls), as well as the long-term history of my trading experience and use of online intelligence sources. I’ll sneak those in as posts over the next couple of weeks. It’s important background if you’re trying to judge whether I’m a voice worthy of catching in your filter. And since my day job makes being a day trader (with the requisite attention span needed) impossible, I’ll detail how I trade with a limited attention span and time.
Who I’m Tuning Into
This week I’ve begun to follow @alphatrends blog more carefully, as well as @fortune8 (appreciate the rationality of another part-timer) and @BuyOnTheDip (because I’m bearish as well). Haven’t decided yet on @mandelbrot though—love the art but not sure I can read the correlations between free text tweets and stock prices.
January 5th, 2009 — Uncategorized
One of my resolutions for 2009 is to figure out how to make better use of StockTwits as a tool for the part time intraday trader. I realize it’s pretty ludicrous to be using what amounts to a day trading tool for a strategy of intraday trades in this kind of market, but my intent is to learn. In fact, when your blogging ad revenue is measured in the millicents per year, the learning is the only thing of value you can glean from doing this in the open.
My going in premise on 2009 is that we’ll see a shallow rally of the S&P 500 to about 1000 on low volume, followed by a continued fall throughout the year to around 770 and possibly lower. I’m more inclined to follow through on ideas that I come across which fit that philosophy.
I’ll try to post once a week on the ideas that have caught in my filters, and the trades that resulted. As we stand before the first full trading week of 2009, I’ve inherited a number of StockTwits-inspired trades that I need to close out before I can fully embrace the one-idea-per-week goal for the year.
The current open positions (and the source of inspiration):
Short NDAQ
I entered this in stages. Short NDAQ common at $23 and $24.50 for a cost basis of $23.50. Long June $20 puts with a cost basis of $2.47.
I found this one via @alphatrends’ post. This was probably a bad idea—the theory really makes no sense from a Madoff perspective, but may pay off if my bearish sentiment is realized early in 2009. As with most of my options-related failures, the timing is key. In the fall, timing mattered little when there were DJIA swings of 1000 points in a day; now that swings have slowed down, timing matters more.
Selling SRS January premium
I’m trying to sell some premium here on my open $SRS position at a basis of $86. Selling a January $70 call tomorrow on any early pop.
$COST Puts
Found this one in two places. While I don’t believe that the payment form limitations cited by @BuyOnTheDip will prevent people from shopping there, I do buy the EarningsBreakout channel check that people are going to focus on staples rather than on premium electronics. Therefore, I’m going short with the puts. Long the July $40 puts with a cost basis of $2.10.
Short BBY
Went in to buy an iPhone this weekend. They were out of what we wanted, so we left. I can’t decide if that’s a good channel check or a bad one, but it signals to me that they are retrenching. Short the common with a basis of $26.45, and also sitting with June $20 puts at $3. Not looking so good with $BBY up to $30 today.
Long $AAPL April $100 Puts
Cost basis $16.86. I still hold that $AAPL is range bound between $80 and $100, so this is sort of neutral. I was simultaneously long and short last week, but closed out my open call positions. I have a tight leash on this into a rally. I may have to hold this until the post-show return to earth.
So far, only the $COST move is in the money. As I close out one of these others, I’m scanning for other opportunities. And trying to stay too small to fail.
December 31st, 2008 — Uncategorized, investing, stocks, twitter
I mentioned before that I love StockTwits. But has it helped me this year?
Sadly, the short term monetary answer is “not yet”.
However, the long term answer from an educational perspective is “yes”. Because as obvious as it sounds, while StockTwits is great for idea generation, ideas are $0.008333333 each, and ideas are no substitute for doing your homework.
Case in point: I buy the premise of most of the folks I follow on StockTwits that commercial real estate is hosed in 2009. And the ticker that is most mentioned when determining how to play the plunge in commercial real estate next year is $SRS. Makes sense. Go UltraShort Real Estate if you want to dial in profits, right? All the cool kids are doing it.
Wrong. $SRS is one of the inverse ETFs that is only really useful to hedge for a day, and it exhibits the fundamentally broken tomfoolery that TraderMark highlights, with the added negative of being susceptible to the sawtooth effect for eroding gains over any period of time that that Fortune8 demonstrates.
The short version: these are horrible vehicles to hold for any kind of intraday trade, let alone as part of any kind of buy and hold hedging strategy. Go read those posts before investing in any double or triple ETF, or in any inverse ETF. As TraderMark puts it bluntly:
I am beginning to wonder if due to the structure if all these ETFs are destined for a near $0 price in the “long term”.
But is my use of StockTwits to blame here? Absolutely not. I plunged into $SRS trusting a premise and voices I agreed with, and even had one good short term trade on $SRS. I was the one who didn’t fully understand what I was investing in before jumping in. I was the one who didn’t read the prospectus. I’ve learned my lesson (and I’m stubbornly still long $SRS at cost basis of $97 and change). But here’s the happy ending. The very insightful blog posts above (TraderMark’s and Fortune8’s) came to me through StockTwits participants including Fortune8 and TradeFast. So I wouldn’t have learned my lesson without getting references to their more detailed analysis that explained what was going on.
My only regret is that they didn’t tweet that stuff in the beginning of December rather than at the end. The good news is that I’m up enough from my $AAPL and $AMZN trades this year that I can tolerate this $SRS pain as I look for an exit (take it now and treat it as tuition? Or hold it and hope for more irrational exuberance to take hold?) and look for a more suitable proxy for a commercial real estate collapse.
So in the end, I paid for a couple of lessons this year. In this one, I not only got reinforcement on doing homework, I also traded up voices I’ll listen to: Fortune8, TradeFast and possibly TraderMark (if this silent twitterer is the same TraderMark from the blog.)
My observation over the course of December is that StockTwits currently holds much more value for the daytrader than it does for the buy-and-hold investor, or for the casual intra-day trader. In fact, I’d say 95% of the value of StockTwits accrues to day traders. There was money to be made in $SRS this week by through the use of StockTwits, but to make that money required a day trader’s level of attention. One of my goals for 2009 (which I’ll detail later this week in a kick-ass post for the ages) is to learn how to exploit StockTwits in 2009 as a tool for someone who isn’t a day trader, someone with periodic, limited attention span. In short, A StockTwits User Guide for the Idiot Retail Investor.
Stay tuned.
