7 questions I need to answer before hitting “buy”

 

Sparrow

Before confirming that trade, can I answer these seven questions:

1. What is the precise systems-generated signal/indicator/technical pattern/back-tested & trusted reason that is telling me to enter this trade (“I just have a feeling”, “The dude on CNBC just said to”, “That handsome Tradervancouver is buying it so I will too”  are NOT trade entry signals)

2. At what price/moving average/indicator/support-resistance/date will I be proved wrong and need to exit (“I’ll just know”, “The dude on CNBC will come back on to tell us”, “When my wife finds out how much money I’ve lost” are not exit signals)

3. How many shares/option contracts will I be buying to properly size this trade to manage my risk (“This is a sure thing so I’m going all in. What could go wrong?” is not a properly sized trade).

3a. If buying option contracts, how will I know if the option is reasonably priced, what delta will I select, what expiration will I choose, what minimum open interest do I require, and what bid/ask spread is acceptable (“I’ll buy as many of the cheapest options I can” is not a plan)

4. If the trade works, how will I know when to raise my stop

5. If the trade works, how will I know what to raise my stop to

6. If the trade works, how will I know when to add to my trade/take partial profits*

7. If the trade works, how will I know how much to add/sell**

* Personally, I choose to add to winning trades. However, some traders prefer to take some partial profits and let the remainder run with a trailing stop. Whatever works for you.

** As a follow-up, whether adding or taking partial profits, a trader still needs to know how much to add or sell.

 

If I cannot answer these questions before (that’s BEFORE. As in: ahead of, preceding and in advance of, ) I enter a trade (Did I mention that these questions need to be answered prior to entering the trade?), then I don’t take the trade.

Lack of a plan = Fear in trading

Having a plan = Confidence in trading

Dilbert1

 

 

Two and a half weeks in the psych ward

That’s not entirely inaccurate.

But let’s back up for a sec.

I’ve fallen, and I can’t get up

Back on July 23, I fell and broke two ribs. Sadly, it isn’t a particularly cool story, I simply slipped and landed on my ass. Well, I landed on my ribs, actually, I just felt like an ass.

In Vancouver there are a number of hospitals, and the two largest are both within a 25 minute walk of our home. One is downtown, older, and has a great deal of traffic from the marginalized, homeless and addicted, but does have a lightning fast ER. The other is just outside the downtown core and is newer, quieter, but ER wait-times can be over three hours. Both have phenomenal staff.

Because of the pain I was experiencing, Lisa and I opted to go to the downtown hospital to get quicker admittance.

Whisked through the ER, two right rear broken ribs were confirmed, and a small pneumothorax had presented. There’s not much you can do for broken ribs except control the pain. I was given a prescription for Oxycontin and told to come back the next day for another another x-ray to determine if the pneumothorax had worsened. Home I went, and after a fitful night, went back to the hospital. The pneumothorax was unchanged. Yay. On with my life.

Six days later, something wasn’t right. I had trouble breathing, there was pain, and I wasn’t happy. Back to the ER. More x-rays. Apparently, the pneumothorax had indeed worsened because now I had a full-on collapsed lung.

It’s a large hospital, with a significant staff. One of the resident doctors was an attractive, inquisitive, sharp woman we’ll call “Blondy”. Nothing derogatory intended, she simply had striking blonde hair. She was part of a team, which included two other resident doctors, a young’ish man from Saudi Arabia (“Saudi”), and an attractive brunette with a fondness for running (“Fitness”). Saudi was clearly highly intelligent, but almost to a fault; it soon became clear that the words “I don’t know” were not in his vocabulary, and I’d prefer someone admit they don’t know rather than guess. On the flip, I can imagine the confidence it must require to open up the human body and be entrusted to put it back together more or less the way you found it – left over pieces are discouraged. Saudi also had a rough hand – compassion and gentleness was not in his DNA. In contrast, Fitness had both the skill and the caring touch.

I do not do well around needles or blood, not well at all. I was told I would need to have a chest tube put in to release the air in my chest cavity, which was preventing my lung from re-inflating. The catch is, you have to be conscious for the procedure. They did numb my side with various local anesthetics, and give me Oxycontin as well, but at the end of the day, you be awake! And so a small tube was pushed into my side between a couple of (non-broken) ribs, a truly unpleasant experience. A one way valve was attached to allow the air to flow out, but not into me. I was sent home, and told to come back the following day for further evaluation.

I didn’t sleep much that evening, but when I got up in the morning, something was clearly not right. The line was full of blood, and freely coming out. I shrieked like a little girl (something that would happen a few more times over the coming weeks), and even my paramedic-trained better half wasn’t exactly sure what to do next. We decided to call an ambulance, and with phenomenal efficiency, we were hearing sirens in less than five minutes as they pulled up.

At the hospital it was determined that my pneumothorax had developed into a hemopneumothorax, and I was admitted.

Because the hospital does not have a thoracic department (the other hospital does), they had to find a place to put me. That ended up being on a ‘general’ ward. And that’s where the fun really began.

Welcome to the Jungle

The floor has four wings, all of which have lock-down doors that require buzzing into the main nursing station to gain entry…or exit. It didn’t take long to figure out why the need for such security.

I was put into a room with one other patient, which seemed fortunate in that I could have found myself in a four bed room. Of course, it all depends on who exactly is in those beds. My roommate was a man in his fifties, average height and weight, clearly had had a rougher life, and was mute. He was also there to detox. Let’s call him Richard.

But back to me.

I was essentially confined to my bed, as my chest tube was now connected to vacuum suction to constantly pull the air out of my chest, in order to give my lung a fighting chance at re-inflating. They had given the suction line a longer extension to allow me to get from my bed to the washroom, which was beside the room’s door. Richard had the window bed, which at first was a let-down, but given the choice between having a nice view or convenient access to the washroom, I’ll take the later.

The suction wasn’t going well. The original chest tube that had been inserted into me was only meant to pass air, but had now of course become partially clogged with blood. The various doctors overseeing my case had warned me that another, larger, tube may have to be inserted in its place. After a week of no progress, they decided to proceed with the new tube, but not before pulling out the old one there in my hospital room. It was a small tube, however there was no local anesthetic this time, it was simply a matter of exhale…hold…and they pull. It hurt. A lot. I may have whimpered like a little girl.

And then it was back to the OR. This time I was more amped up because I knew exactly what to expect. The first set of drugs they gave me didn’t take the tiniest edge off. Around the third set, I started to feel wobbly, but still very much aware. The insertion area was once again localized, and Fitness inserted the new tube. It’s a disconcerting feeling being awake while a foreign object is being fished into your chest. Especially when you’re a gigantic pussy like me. So yeah, despite her skilled touch, it hurt. A lot.

The thinking was that this larger tube would do a more efficient job of evacuating the air from my chest, and at the same time, wouldn’t become clogged with blood. It had been determined that one of the ribs that broke had punctured the lung, and that puncture was slow to heal, making the inflation process more challenging. Perhaps the larger tube would help that healing process as well.

Click to enlarge

chest tube

The second chest tube. They gave me a new one as a souvenir.

 

Yellow wrist bands

If you had an additional yellow wristband, you were restricted to the ward – you weren’t getting through the locked doors. There were a lot of yellow wristbands on my wing.

Healing in a hospital is tricky at the best of times. Even for the few in a private room, you’re still in a hospital, and not in your own familiar bed. There’s the constant noise, the frequent pokes and proddings, and plenty of bad food.

But on this ward, the fun is amplified. The nights were actually worse than the days. There were other patients on my wing that were there for similar reasons to Richard. There was Wayne, who would scream out repeatedly for a nurse because he was in pain. He was in pain because he was in withdrawal, and the nurses repeatedly explained to him that they gave him the maximum medication they could, when it was due. Apparently it didn’t adequately meet his needs. Fun for his three other roommates. And Wayne wasn’t the exception, he was the norm.

And then there was Richard. Richard had a yellow wristband. Richard also disliked clothes. There was a two day stretch where he would get up, remove his hospital gown, and stroll out into the hallway, wearing not so much as a sock or a smile. A nurse would generally spot him quickly, scold him in an exasperated tone with completely controlled patience, escort him back to our room, grab a gown from the room’s linen trolley, and remind him that he needed to be clothed as it’s rude, and there could be children present visiting relatives. There were no words from Richard, of course, but there was defiant grunting and bellowing. The nurse would leave, Richard would bound up from his bed, remove the new gown, toss it in the laundry hamper and march back out into the hallway. We went through a lot of gowns during that phase. And I saw way too much of his bits and pieces, as did Lisa. Sorry, Lisa – you can’t un-see something like that, unfortunately.

Then came the pee and poop phase. That started about a week before my stay came to a close. There were stints where I was able to temporarily be off vacuum suction, which gave me greater mobility. Not that there were a lot of places to run off to, but even a shuffle down the hallway was a welcome break from bed confinement. On one such excursion, I returned to the room to see a very naked Richard standing in front of the big bay window. He was peeing into a plastic drinking cup. He finished, walked over the to hand-sink by the door, and poured the contents into the sink, pee awash. He looked at me in the hallway, gave me a big smile, followed by a thumbs up. A couple things occurred to me. One, why was he naked again. Two, why was he peeing into a drinking cup. Three, why was he pouring said contents into the hand-sink and not the toilet in the washroom…or at least the sink in the washroom. Four, why was he giving me the thumbs up. And five, how did a collapsed lung land me in this environment.

Throughout my stay, Richard had a quirky habit of walking over to the bathroom, opening the door, looking in, then going back to his bed. I never did figure out exactly what he was expecting to find. He also had a habit, on those occasions that he actually made use of the bathroom, of not flushing. Anything. ‘Nuff said.

Five days after the larger tube had been inserted, it had begun to slide out. Saudi came to my room and announced he would be stitching it into place. Would I like a local, or can he just go ahead and stitch? Yes, I would very much like a local! I got the impression he would offer those facing limb amputation a leather strap to bite down on, and a Flintstones chewable multivitamin. He clearly but silently disagreed with my frivolous request, but once he started the stitching, I was thankful to have it. I yelped as he pressed down on my fractures, and as he tugged at my skin like he was sewing a boot.

At one point the tube needed to be flushed to ensure it hadn’t become plugged. Saudi, Blondy and Fitness came to my room, but at my request, Fitness did the actual work. Saline solution was flushed up into the tube, and it was the most pecular sensation. Both Blondy and Fitness were quite curious as to what I was feeling, and the closest description was it felt like someone was pouring water on my side, but of course, it was actually under my skin. Not a painful experience, just terribly odd.

Of my two and a half weeks, I had roughly three nights of reasonably solid and continual sleep. Most nights I averaged three to five hours. I suspect that everyone that was sane on the ward was in the same boat. I do know that Richard slept well, because by and large, that’s what primarily kept me awake. His snoring was of a volume that is unlike anything I have ever heard. And it went in 15 to 20 minute waves. It would start quiet, and work up slowly into a crescendo, and peak with a violent, sleep apnea-like induced coughing and choking explosion. Rinse and repeat. Even with headphones, it was an impossible event to sleep through.

My 15th evening was the limit. Throughout the night, the screaming from around the ward, combined with a Restless Richard, made for an impossible sleep environment. By 6am, I had not slept a single minute. Sleep deprivation does something to you. And in a hospital setting, you’re also trying to heal. I count myself infinitely fortunate that I had a “Lisa” looking out for me, and bringing me food daily, saving me from what was largely unappealing hospital fare. To the hospital’s credit, they’re trying to produce reasonable food on a mass scale for an ever-changing variety of dietary requirements, all on what is probably a strictly controlled budget. I don’t think I’m a particularly finicky person, but I think two and a half weeks of minimal sleep and an unappealing food plan would not be conducive to mending. On this particular morning then when Lisa came by before heading to work, I told her I didn’t think I could stay here anymore. There was talk of discharging myself, and going over to the other hospital. Ultimately though, the doctors told me I would only be sent back to the first hospital that provided the initial care. Escape plan foiled.

The next night, Richard got up around 11pm. I was still very much awake as I watched him walk in front of my bed, and proceed to poop on the floor. I didn’t get the sense that it was a case of him not making it to the bathroom, rather he had in fact reached his destination of choice. Perhaps then sensing the error in his ways, he grabbed some paper towels and not so much attempted to pick up his handywork, but rather wipe and spread it around the floor. The smell was, well, you can imagine. I rang for a nurse, and housekeeping arrived shortly afterwards to clean up the scene of the crime. Despite their thoroughness the smell continued to linger.

Richard also had a habit of grabbing gowns or towels off the room’s linen trolley, using them briefly, and placing them back on the trolley. On one occasion, he had a need to clean his ass. Don’t we all? He picked up a cloth, gave himself a couple of wipes, looked at the cloth and I assume deemed it still useable, and put it back on the trolley. If a nurse put a gown or a cloth in the hamper, once she left the room he would reach into the hamper, remove the item and place it back on the trolley. I learned pretty quickly to get linens from the main supply at the nurse’s station.

By the two week point of my stay, there was serious concern that my lung was not inflating. Two possible courses of action were being considered. Either another chest tube would be inserted, just above my current one, or I would indeed be transferred to the other hospital (the one I was trying to escape to) where their thoracic department would look at performing surgery on my lung.

Neither option particularly excited me. Going through not one, but two chest tube implants already, and knowing how painful it was trying to move or sleep with it made me none too excited to have another inserted. The idea was that this new tube would be placed higher above the current one which would be staying in, and therefore be better able to remove the higher pockets of air. The problem was, the tubes are plastic. There’s little way to guide it effectively, and it’s free to move as it wants once inserted. All of which is to say, there was absolutely no guarantee it would even work. When I asked about the surgery option, Saudi’s response was, “Well….it’s not as serious as open heart surgery…”. Very reassuring.

One of the cool things hospitals do now is offer therapy animals. Lisa happened to catch one on her way out of the hospital and asked if they wouldn’t mind popping up to see me. I had no idea what was coming, and it was a welcome treat to see this big, beautiful girl pad into my room:

Dakota

A most welcome visit from Dakota, the St. Bernard. Pretty girl!

Ultimately, it was agreed that surgery was the better course of action. The threat of that alone was apparently enough to kick my body into healing mode, and the day prior to transfer, the latest of many x-rays showed my lung had indeed begun to heal, and had inflated enough to send me home to continue the recovery. Of course, before I could leave, there was the matter of the tube sticking out of my side. Saudi came in, and told me he’d just taken one out of another patient who had barely felt anything. That patient must have been a fucking Viking because when Saudi yarded mine out, it felt like a white hot poker had been pulled straight through my rib cage, and I wailed like a little nancy, once again.

My saving grace was Lisa being there, and willing to remove the old bandages and apply the new ones. Saudi was happy to let her do the “nurse’s work”, and obviously she had a defter touch than him.

So long and thanks for all fish

I was glad to be home. After many nights of hospital mayhem, it was almost hard to re-assimilate. In fact, the first night home was a pretty terrible sleep. But yes, obviously I was relieved to be done with Richard, et al.

My lunacy of my little adventure had not gone unnoticed by hospital staff. Even Fitness had grown concerned, commenting that if I was there much longer, I was probably going to need a psych eval. Unfortunately, there were limited options for me – the hospital was at capacity, so it was what it was.

A couple of things really stood out while serving my time:

First, the hospital staff were truly amazing. From the ambulance paramedics, to the entertaining porters that whisked me down for x-rays and CT scans dozens of times, to the unfailingly cheery cleaning staff, to the doctors, and most certainly to the nurses. Especially the nurses. I watched numerous instances where the nursing staff were faced with impossibly difficult patient situations. And in every single case they handled it with infinite grace, compassion and patience. A mere mortal would not last a shift on that ward. Whatever they are paid, it is not nearly enough. Respect.

Secondly, being sick or injured sucks. But if you have to be sick or injured, having the support of a loved one certainly makes it more tolerable. Lisa was usually there twice a day. Consider for a moment trying to balance your already full work and daily routine with the added component of visiting a hospital before you head to work, and again in the evening. And then imagine organizing and bringing meals, washing pj’s, and taking care of the homefront on top of that. It was a long three weeks for me, but it was an equally long three weeks for her. It wrecked my Summer, but it also brought hers to a grinding halt as well.

Contrast that with Richard. He was there when I arrived, and he was there when I left. Mostly because he had no where to go if he was discharged. He had been living with his sister prior to his hospital stay, but she no longer wanted him in her home. Family or not, I can’t really say I blame her. In the time I was there, she visited him twice. Each visit was roughly 15 minutes. He was informed that he would be moving into some sort of care facility, and three days before I left, he decided to go on a hunger strike. Nurse after nurse, after practitioner, after social worker came to see him. He was largely illiterate, but could manage a confusing concoction of hand signals and writing. They would ask him endless questions about foods or beverages he liked. Did he like milk? No. Did he like chocolate? No. Did he like sandwiches? No. Did he like Coca-Cola? No. Did he like ice-cream? No. Did he have a favorite food? No. Finally someone started asking the bigger questions – was he upset about not going back to his sister’s? Yes. Was he upset about having to go into a care facility? Yes. And then THE question – was he thinking about killing himself? Yes. At that point, he was put on suicide watch, and had a nurse bedside at all times. Cutlery was now plastic. Not that he was eating.

You can’t help but feel empathy towards him, but quite honestly then I remember, and that quickly dissipates. There’s also a sense of frustration that there are patients in the hospital that are simply there because there’s no where else to put them. He wasn’t physically ill or injured. He had been admitted at some point, and now was stuck in the system. It’s undoubtedly frustrating for the care staff, it’s frustrating for other patients, and clearly frustrating for him as well. It’s an inefficient use of resources to be sure. I have zero idea what the solution is, and I know that I most certainly do not have the expertise, nor the compassion, to come up with realistic solutions.

As injuries go, I very fortunately haven’t had many in my lifetime. While this wasn’t the worst – the broken hip holds that honor- it was certainly the most…colorful. My lung is 100%, and now it’s just a question of waiting for my ribs to heal.

And finding a way to make it up to Lisa.

 

 

 

On Trading Advice vs Trading Opinions

 

I recently had a thought provoking conversation with a friend who is a successful trader in his own right, that got me thinking about the slippery slope that exists between listening to other traders for words of advice, and listening to them for words of opinions.

Without question a new trader can find an abundance of both out…there *he gesticulates wildly*.

I tend to read a lot, and mostly on trading or trading-related subjects. I prefer an actual book, as then I can scribble in them, freely and enthusiastically bend page corners, and refer back to them at a glance down the road. But I’ve also got a few books on my iPad, and of course, there are a number of blogs and websites I check in on now and again.

I’m not looking for market opinions, though. Some of the traders I read are quite well known and respected, but I’m more interested in their notes on trading psychology, risk management and trade planning. A number of them also have subscriptions available, and in many cases, those include frequent emails on their own personal opinions on the market. Some even go so far as to call tops, or advise going to cash.

For starters, without knowing a trader’s time-frame, those sorts of recommendations are meaningless. And then there’s the question of bias. It’s impossible to fully know what another trader has going on behind the keyboard – did they miss the recent run themselves, and would then prefer their followers join them in the “be in cash” camp? Did they load the boat on $SPY calls and are therefore suggesting everyone else feverishly hit the ‘buy’ button too? Have they recently gone through an ugly divorce and are bitterly looking at the world with self-destructive intent? Are they in a new and blissful relationship and everything looks like puppies and happiness?

I re-tweet or mention the work of some well-known traders from time to time. I do so because I think the specific article or book has merit and value. But while some of them offer up additional – and usually fee-based – services, that isn’t something I’m interested in, nor would I endorse signing up.

Because, once again, while there is no shortage of market opinions out there, no one has a clue what’s going to happen next. It’s just their personal best guess.

Read to soak in various trading strategies and trading plans that are out there. Read to learn about the critical role trading psychology plays in being profitable. Read to learn about the plethora of methods traders use to determine stop placements. Read to understand risk management. Read to understand the mistakes of those that have gone before us.

But don’t read to find out if now is the time to go to cash, or the time to buy out of the money weekly $FB calls. That’s a question only you can answer. And you’ll know, because you have a trading plan. Right?

 

 

Why I’m shorting McDonald’s

 

It seems almost impossible to imagine that a company the size of McDonald’s could in fact, vanish…or is it?

First though, some disclaimers.

  • I’m a fast food eater. I grew up with McDonald’s in my life, but my parents recognized the value of balance, and so eating at McDee’s was a ‘sometimes’ treat, not an ‘everyday’ treat.
  • I’m not a born-again vegan with a raging hard-on against the satanic fast food industry and a single-minded desire to change everyone’s eating habits; I still eat the occasional fast food, but some time ago, McDonald’s ceased being my go-to choice.
  • I’m normally just a charts guy. But every once in a while, a story appears that catches my interest on a few levels, so I start to look a little deeper.
  • I could be totally, completely, utterly wrong here. Which is why I use stops, but more on that in a minute.

McDonald’s has been on my radar for a while now, but what finally nudged me over the edge to get into the trade was seeing one of their new TV commercials last night. It was for some wrap thingy (maybe only available here in Canada, who knows), but the 30 second spot screamed of a company frantically trying to reinvent itself. The product looked odd, which is not an appealing quality, and certainly didn’t leave me wanting to try it.

Case #1. The numbers:

Now, I’m not going to painstakingly break down the latest $MCD earnings numbers for you here. There are enough people out there doing that already, and doing a far better job of it than I ever could, at that. McDonald’s reported for the quarter on the 22nd, and it missed on both earnings ($1.40 versus $1.44 estimated) and revenue ($7.18 billion versus $7.29 billion). It’s feeling the pressure of lower sales in both the US and Europe, and perhaps most disturbing, it’s offering little in the way of positive guidance for the remainder of the the year. And this is not a new development: the company has struggled with their  numbers since 2012. One gets the impression that every quarter the board probably feels like a grade 8 student schlepping home with a poor report card, bracing for that conversation with the parental units. The company is facing increased pressure from, quite frankly, better tasting competitors. Those competitors include Chipotle Mexican Grill, which interestingly, McDonald’s once owned 90% of; “once owned” being the key phase there. D’oh! Which brings us to…

Case #2. The food:

Consumer Reports latest food survey had McDonald’s burgers rated 21. Out of 21. So, last, basically.

http://static3.consumerreportscdn.org/content/dam/cro/magazine-articles/2014/August/CRM_Consumer_Reports_Taste_Champs2_08-14.jpg

That’s not good. At the end of the day, even if it’s fast food, people want to at least enjoy the indulgence. And clearly McDonalds isn’t delivering.

What more is there to say?

Case #3. The chart:

(click to enlarge)

MCD July 2014

$MCD has had an undeniably strong run since 2003, as this weekly chart shows. But that trend seems to be wavering. The double top that formed with the peaks of April 2013 and May 2014 is easy to see. While that strong uptrend hasn’t yet been broken, it is weakening. With the double top comes an obvious stop loss point – a break above that would nullify this short idea.

There are clearly cracks in the armor of this monster company. Calling for it to vanish completely sounds a bit silly, until you start to ponder the larger question, which is: Is this a business that would get off the ground if it were started today? I think the answer to that is no. And the problem is, despite their attempts to reinvent themselves, they are still McDonald’s. Brand recognition is a powerful thing, but in this case, that may not be a good thing.

I’ll leave you with one final thought. Sometimes big companies do in fact just go the way of Blockbuster (see, there’s an example right there). Remember Compaq? MCI WorldCom? How about Arthur Andersen, a company that ran from 1913 to 2002, and employed over 80,000 people?

Think McDonald’s couldn’t just vanish? Ask yourself if your life would even skip a beat if it did. Would anyone’s?

 

Radio Silence

One of the great joys of being a free-thinking, independent investor is the ability to change direction on a moment’s notice.

Fish+cartoon

There’s no committee formation, no focus groups, no proposals to submit. Be it an investment decision or a business direction decision, we’re free to make changes. Now, they may not ultimately be good changes, but as my dad used to say to my mom on our summer vacation roadtrips, “I’m not entirely sure where we’re going, but we’re making great time!”

Despite my lack of updates and posts, I am still trading, and slowly adding quality positions as I find them. I didn’t make a conscience effort to stop posting, it was just the result of Life, and time getting away from me momentarily. And then an odd thing happened – there was a sense of peace that was actually kinda nice.

Some traders find it a challenge to stick to their trading plans, and for them, posting is a fantastic way to self-impose accountability: If you post that you’re buying a stock at $25, and your stop is at $20, then you are far more likely to stick to that stop and not sell out early…or worse, not sell at all.

Others post to share their trading experiences, both the good and the bad, in the hopes that others may learn.

And some post simply out of ego.

I suppose I post out of some sort of combination of all three.

In any event, what I’ve noticed is that by trading in silence, my trading has not suffered, and in fact I believe it has improved. And I measure that improvement not solely based on percentages, but also the bigger, tougher questions: am I following my own rules? Am I taking quality trades? Am I practicing discipline? What about patience? And I believe I can give myself high marks across the board by that yardstick.

I recently re-read Nicolas Darvas’s book, and though I’ve read it a number of times over the years, each time I read it (or any book, for that matter), I tend to get something different out of it – likely because each time I read a book, I’m in a different frame of mind, with different questions bouncing around in my head. This time around, I was more interested in his battle with “noise”. He needed to trade in silence, without constant, streaming input from other traders, brokers or excessive market data. And that resonated with me.

We go through phases, I think, and at the moment, this is “radio silence” phase for me – certainly not a permanent disconnect, just a break. I still privately correspond with several of the wonderful peeps I’ve met through Stocktwits, Twitter and this blog, but for now, the public stuffs will be minimal. I may even look to post more non-market related material.

I think sometimes we (and by ‘we’, I mean ‘I’) tend to get too focused on the details and fail to see the forest for all the trees. A step back, to regroup in silence, can be a healthy thing. I rarely look at my accounts during the week these days, and in general, spend about an hour or so on the week-end reviewing positions, and scanning for new ones. I don’t need to look at things every day because I have stops in place, and my trading platform will email me price alerts as they’ve been set for existing positions. If I don’t get any emails, that means there’s not much to look at.

I guess that’s what Darvas was trying to explain – ooooh! Now I get it….

0_0_0_0_250_262_csupload_43612477

$BBY strangle…redux

Back in March 2013, I did a post on strangles, and in it I detailed a long position strangle I did on $BBY. The trade was profitable, but admittedly, if you pull up the chart you can easily see it had much more room to run. Moving on!

We all know the Best Buy story, and how it seems unfathomable in this day and age that such a behemoth of a walk-in retailer can still exist. And yet it does. But I’m a chart guy. Mostly. The stock took a wallop (that’s a highly technical analytic term) back in January, and has been moving sideways ever since.

To be clear…I HAVE NO IDEA WHERE THE STOCK IS GOING TO GO….

And as always, I have zero idea where any stock is going to go.

At the moment, the options market is pricing in a 21% move in BBY by January 2015 expiration.

Sidenote: For those not familiar, that figure is arrived at by adding the cost of buying an ATM Jan ’15 call, and an ATM Jan ’15 put, in this case that’s roughly $6.20 combined, therefore for that position to break/even the stock would need about a 21.5% move by expiration date.

To me, given the historical pricing of the stock, given that the position would have 8 months to play out, it makes it a reasonable trade. Others may very well disagree. My thesis for buying the strangle back in January 2013 was that in my opinion, the company was unlikely to not undergo some sort of major corporate shift, or at least have that potential shift factored in by the market within 6 to 8 months. And at this point, I have a similar impression once again. I think a minimum 21% move by then in either direction is reasonable.

I’m not betting the farm on this trade; I’m treating it like any other trade, which means sizing it accordingly. I may in fact average into (not ‘down’, ‘into’) this position gradually.

Weekly chart, click to enlarge

BBY June 2014 strangle

 

 

 

Trading update

Last week I started deploying some cash back into the market.

I’m looking for high quality set-ups where I have an edge, and am being terribly picky about them.

At this point, I’m still 95% cash in one account, and 88% cash in another, with a total of 9 positions, the latest was a short on $PNRA this morning (I posted the idea, just not the trade itself. My stop is a close above $159.18, for those interested), and that is my only current short. I don’t think it’s cool to post my holdings with my entry prices now, as I didn’t post them when I took the trades, but I will at least run down the tickers here:

Long positions:

$SPY

$WFC

$RAD

$FLEX

$CSCO

$DOW

$TWTR

$DD

Short positions:

$PNRA

I’m sure the $TWTR position will raise an eyebrow or two, but it’s a risk-managed trade, using longer term calls (LEAPs), sized appropriately, and my current stop is a close below $29.51, the all time low.

So that’s where I’m at. I’m in no rush, and will add trades as I find them. I’m looking at multiple time frames, and in the vast majority of cases, using ITM LEAPs.

Be picky, be patient. It’s your money on the line.