My Life My Trade

Trailing stop loss hit.

BOT them here for $1.50 and managed the position down to $1.23 – 12% profit (after commissions)

You must have noticed that some of my trade related posts today were titled MANAGED. There are many ways in which one can manage positions. I will share with you two techniques that I have used today.

A range trading day like today when the market goes into both, red and green territory is a wonderful day for managing positions. Of course, there is nothing better than the market heading in the direction that would benefit my portfolio the most. But that doesn’t happen always. So, one has to adapt and make the best out of what is offered.

Averaging down/Scaling in: This is something that most of you would already know. At the beginning of the day, I purchased some contracts of USO Jul $39 puts @ $1.20. Subsequently, USO moved in a direction away from what I predicted. So, I added more positions at @ $1.03 to give me an average price of $1.13. This is why it is critically important that one “scales-into” a position and not buy the entire position at once. Scaling in gives you a chance to refine your position in case the initial entry was a bad one.

Buy-low Sell-high or Vice-versa: On Friday, I purchased QID Jul $32 puts @ $1.50. Today, at the close, these puts were priced at $1.30. If I just held onto them, then I would be looking at a loss of $20 per contract. Instead I used the down move in the beginning of the day to sell my puts @ $1.55 and then get back in near the highs of the day again @ $1.25.

So, what is my current cost per contract – $125 minus $5 (profit that I made by selling Friday’s purchase) making the cost to be $120 per contract. So, even though from Friday to Monday, QID Jul $32 puts went down $20 per contract, I am still looking at $10 profit. This is the magic of managing positions.

Today it was easy to sell my puts near the lows of the day because the move down clearly lacked momentum, and the quick reversal last night only confirmed that the move down was a fake out/bear trap. Of course,  one has to balance this out with letting the winners run.

I will also take this opportunity to point out that this is how Atilla who has been short since SPX 720 has probably not lost a dime, and probably even made some even though SPX today is 200+ points higher.

In summary, two key elements that are critical for success in trading:

• Good entry (if the entry is bad, managing positions can only do so much).
• Good position management (seldom will your entry be perfect, but you can take advantage of the up-down gyrations of the market to refine your positions).

Folks, if you found this useful, some love shared would be very much appreciated

BOT the initial batch here @ $1.50

SOLD PALM Jul $16 puts @ $1.20

MANAGED Positions in GS Jul $145 puts to get an average price of $3.62

MANAGED Positions in GDX Jul $39 puts to get an average price of $1.08

SOLD RIMM Jul $70 puts @ $2.73

MANAGED Positions in QID Jul $32 calls to get an average price of  $1.23

SOLD BIDU Jul $270 puts @ $3.30

BOT USO Jul $38 puts @ $1.20

BOT OIH Jul $100 puts @ $3.40

MANAGED positions in TZA Jul $22.5 calls to get an average price of $1.57

MANAGED positions in ICE Jul $110 puts to get an average price of $3.00

BOT IPI Jul $29 puts @ $1.70

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