It is a good idea to stop and make a rule review. There has been so many good plays the last few days. Yesterday alone was a guaranteed to be a money maker on down stocks. OK, there’s no guarantees in the market so the previous statement is not accurate. It maybe just hindsight. However, in general there have been many opportunities the last few days that I couldn’t take advantage of because I made one stupid mistake: I went all in on my previous trade. That trade has lost me most of the account (95.43% at the time of this entry), and has kept me away from the market in the last couple of weeks. The market has been volatile and that is a great thing for option traders because it causes premiums to really rise.
With high volatility comes high risk or capital loss. So to ensure capital safety, one must exercise great caution in:
Determining the correct side of the trade
Not forcing a trade
Adhering to the money management plan very carefully.
I hope that in the next trade, I will use better judgement and not use most of my emotions but rather most of my money management plan.
Well, lot of money was made by someone! Big moves always mean someone is making money. When there is someone selling, there’s always someone buying. Not necessarily an individual investor. It might be a fund that buy at a lower since they’ll hold for longer term and might be buying dividend paying stocks. Might also be that the market makers or specialists on exchange floor are buying. But when the market makers and the specialists buy, they will make sure they get a good price. They provide liquidity. Also probably volatility.
Anyway, the MSFT calls are at this point 100% guaranteed to not be profitable. However, what is the minimal loss that I can get out with. I have almost wiped my original investment. That was one of the rules to not lose the original capital. Now, I will have to attempt to guage and estimate a correct price that is possible and attempt exit around that. I will most probably also have to fund the account again.
Never, go all in!
Market Analysis - Nov. 6th.
And then there’s the MSFT.
MSFT - Nov. 6th.
Aside, from the overall market direction, the selling pressure on MSFT seems to be cooling off. So hopefully, it will make a move up in the near future. I also have some MSFT share in a different account. Those are just for holding.
P.S. This post is made on Nov. 7th morning but backdated for continuity.
So Yahoo says that Microsoft should buy it? Why? They were too good for the original 33/share price. Then they would do anything to avoid being bought over by the “bad” Microsoft and went begging to Google. Google also tried to unnecessarily “save” Yahoo from Microsoft. For what perverse purpose? What is the big problem? Yahoo acquires news technologies and their userbase for the purpose of making money. Google acquires new technologies (some really just a teen social phenomenon) and their userbase for the purpose of making money. So what is so bad here about Microsoft buying Yahoo and it’s userbase for the purpose of making money?
This might be reflecting the new Microsoft price of 21.69 currently. Which is really bad for the calls I’m holding.
Yesterday MSFT fell below MA 20 and gapped down today. Also continues to go down today. This may be a simple following the market thing or another expectation from shareholders of MSFT that they’ll do something crazy like buy Yahoo.
Personally, I think that MSFT will benefit from the added userbase of Yahoo and if MSFT revamps the really big and overly flash based ads on Yahoo that take 50% of the screen, then it will be a good money maker for MSFT. Even as is, it might be a good money maker. But it has a slightly cheesy look. But on the other hand, if paying a premium and having the share price nosedive is gonna be a longer term thing, then I don’t want MSFT to buy and get involved in rebuilding a search engine company that long since stopped being a search engine and has become more of a web portal. Not insulting Yahoo search capabilities, but just saying that even people who use Yahoo as their main search engine, use the word “google” to mean search. When they search on Yahoo, they say they just “googled” it!
So the post election market was a down day. It’s probably not due to the election result or anything. Might be that the pre-election gains were on an optimistic note and this was the market giving those back. Still holding above the 9K mark. Only tomorrow will tell which way the focus is.
Market Analysis - Nov. 5th.
Also MSFT continued with it’s dismal performance. So those options are worth even less.
First, of all there’s a lot of stuff that I’ve been tracking. The market charts (Indices), MSFT chart and now a watchlist. It will get a little confusing discussing previous day’s watchlists and posting new ones and discussing charts and all. So hopefully, I can have a clear format and keep it simple.
Market Analysis - Nov. 4th.
The markets did well today. There was something of a pre-election downturn but in the end, I guess most people decided it was still time to buy.
On the other hand, let’s see how MSFT did. It seems to have done well for the day. RSI is already making higher lows. MACD seems to be making level lows and CMF is lessening selloff pressure. Hopefully, it will allow the stock to rise higher and cause the option premiums to gain value. Not holding much hope of getting higher. But it is still nice to know that technicals point to a climb higher. However, on the fundamental side, the election could swing the market either way tomorrow. Most people says it should go higher on election rally. Tomorrow will solve that mystery.
Currently, my portfolio is down 87% or something crazy. This goes to those rules I hadn’t made yet and that I didn’t stick to. Well, not having made the rules is an excuse, since I really knew money management is the only thing that separates the tranders from the dice rollers.
All I can say it that having my money tied in microsoft has taught me the following:
Just because the stock is a good stock, doesn’t mean the options are worth trading. If the stock is not trending those options mean nothing. Actually, in that case those options are losing time values everyday. Especially, with front month options.
Too far out-of-the-money options lose value very fast once there’s only 3 weeks or less left.
When you’re down more than 50%, get out. Some people might be more inclined to cut their losses earlier, however, with options you have to give it some room. I have been down 40% and then gotten out at a good 10% profit and watched the options to up to almost where it would be 100% profit. When it’s down 40% and you’ve been holding for 2 weeks, it is already time to cut the losses and leave. Realize that at that point anything short of a huge spike in the stock is not going to get to even breakeven.
Refine the trading rules and make them a concise list of rules that can be easily be followed.
Looking at the MSFT chart, is shows it might go up a little tomorrow. However, in general this is such a slow moving stock and anything less than one of those 900pt rallies in the DOW will not make the options move.
I was also playing options way far out of the money to get cheaper options and hoping that buying more would benefit more. That is simply not true. Closer to in-the-money or at-the-money options will move that much more if the farther out options move a lot. So still bigger gains will be at the closer to at-the-money options.
Might have to try to get out around 0.10 or .11 or possibly higher. Although, I won’t hold my breath for .11 or higher. Just wanting to free up the money to play other trades.
Seems it stayed quite alright until 1:00pm – 1:30pm. After that more of a selloff. Possible pre-election feelings? It sounds as if both parties will possibly have a positive effect on the market. Not like either has a really good plan. So it has to be either a downturn on either due to lack of a plan or that people slowly start getting back in the market and letting the winner take office and move on with running the office. Hopefully, it will be the latter. Otherwise, it will just whipsaw until next year and go nowhere as people wrestle with different emotions.
Keep in mind that as options traders, we don’t really care which way the market moves. Just that it moves. And possibly more important than that is that we possible the trade on the right side of the market.
Which reminds me that my next post will discuss my current portfolio.
Looking further into the MSFT chart, here’s some analysis.
There’s two resistance (trend) lines. The blue one is the first. The brown is the second. The brown one would seem to be the more prominent one for the moment. The CMF shows that the buying pressure is letting up. This doesn’t mean a buy signal by itself. However, it would show that heavy selloff is behind us.
MSFT - Oct. 29th.
The RSI is still sort of high but bent downwards at the close. The MACD is touching the trigger line but hasn’t crossed it yet. If tomorrow in general is a green day, it should help.
Overall market sentiment seemed to be positive with caution. Market seemed to wait for the FED announcement for the rate cut. After the announcement, it took a deep dive and then headed back up. Stayed positive except for the last 30 minutes where it nosedived. So what happened? I think it’s the basic people-being-cautious thing. They’re afraid to call a bottom too soon but on the other hand they are tired of seeing red and are willing to buy at prices they might think are good.
Looking at the overall sentiment, it would seem that the close today wasn’t a big negative. It might continue the slight upward momentum tomorrow. If it does, that will help restore investor confidence. It raelly is the investor confidence that drives the market up and not so much the trader confidence. Many traders are perfectly happy trading Put options and shorting stocks as long as there is market movement. But the investors that invest and buy big bundles of shiny shares with their money are the main market confidence source. That is my opinion.
Let’s see the DOW here.
DOW – Oct. 29th.
MACD seems to be still showing the buy signal. However, the MACD is a lagging indicator and so we must be careful of using that alone. RSI is above oversold and was headed up until today where it seems to be down. However, this is mostly going to be reflecting the downturn on the last candle. The volume seems to be lower than yesterday. In the previous sharp day long selloff the volume seems to be higher than on the green day and seemed to rise. On this bar, the volume is less than yesterdays. So seems as if the selling pressure is slowly down, even if temporarily.
It’s below it’s MA(50) and MA(200) so technically still in a downtrend. Well, the MAs and the actual candles and chart going down shows the downtrend. Is it bottoming off? No one knows and now has been able to successully determine a formula for finding that bottoms and highs, but this might still be a safe level to buy if the momentum upward continues.
Interesting day! A 889 point rally. Dow was nicely up. So all you call holder who are profitting did good. Congratulations. My own MSFT options were bought at a high price at the time of the last rally small rally. The trade was opened on the 21st. However, the price kept going down and after many red days, now, the trade is down 88%. Very stupid move. Very careless. Here’s is how it happened.
I bought 10 at .53. It went down. So I bought 10 more and averaged at .50. Thinking that when 20 options are sold at .70 it will be better profit. This was done out of desperation. Not by looking at the charts. Never looked for confirmation on whether the market is headed up or whether the security is headed up. Then it went further down. Bought 6 more and averaged at .45. Then it went down and bought another call at averaged all at .44. So in total 27 Nov 27 calls. Current value is .10. At one point it was .02. Luckily, I never looked at it when it was lower than .05, I think. Maybe .04. Now, I’m looking at this and realizing that it will need multiple green days before the option price starts moving up. The option price is derived from the security. That’s why options are derivatives. However, it has many reasons for staying. If no one believes the MSFT will go up enough, then what’s the point in buying the option. So it doesn’t increase much. If it has the possibility of going at least close to 27, then the price will increase. Now, I’m praying that I will be able to get out of the trade profitable. These expire on Nov 22nd. Current gameplan is to pray and hold.
This mistake of going all in and averaging down has been eye-opening. You can’t trade without identifying your risk/reward ratios and without having rules that you will adhere to. Will this work? In the long run? I don’t know. It depend on my ability to follow the rules that are carefully made and to make good trades. God willing, I will be successful. My current goal is to go from $1,000 – $2,000. So far I am successfully somewhere around $200.00 in account value. So very much in the wrong direction.
Let’s see below the DOW chart. Notice the first rally was with the pink circle. RSI showed oversold and MACD showed no buy signal. Today’s rally showed RSI heading up but well out of oversold territory. The MACD was sort of sitting around. Now it’s shows the buy signal. These two signals alone don’t say anything matching. So further green days will show whether this down trend is temporarily gone or really slowing down to start trend reversing action.
