mysidetrades: Looking into Shorting these, I tell you why

Saturday, October 20, 2007

Looking into Shorting these, I tell you why

I may add more text on this subject but for now just wanted to look at these charts and point out the unusual option activities on these stocks. I certainly do not have the right tools to search and spot stocks with heavy volumes and unusual option trades. I have accidentally encountered the following two situations and wanted to share with you. My interpretation of the high volume option trades is, someone is putting a large bet and maybe knowing or hoping there is more down-side in the stock. In general I think this market correction is short term and bull market will very well resume after this correction. So for longer term I am looking for good stocks from my shopping list and if their individual stories are not changed, I will by them soon. But one thing I can not take a pass on is , stock which gapped-down with heavy volume, and warned investors in their conference calls (this mostly applies to SLB).
SLB Dropped more than $12.30 on Friday (11%) and KMX down 4% on Friday market close.

Schlumberger : SLB Nov 100 Put traded at $4.65 (Up 287%) On Friday Vol.: 6482 Carmax: KMX Nov 20 Put traded at 0.75 (Up 57%) On Friday Vol.: 5286

I am looking into buying puts on SLB and buy puts on KMX (If it can not hold the $20 support)

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My trading rules:

Here are a few trading rules that I found working for me over the past 15 years.
A. Try to follow the steps of the elephants (i.e. big mutual funds and institutions).
B. Its not my goal to predict the bottom for a falling stock or hoping to sell at the top.
C. I will be happy to pick the right stock, make a trade in the right direction, and take profit.
D. Always look for shorting opportunities in the market. Fear is a powerful emotion which can drive the stock price to lower levels.
E. Do not see how one can survive without buying puts to protect against bad market. (well If you have short positions a falling market is a good market).
F. Try to allocate not more than 20% of my trading budget for each trade. Always have 15-20% cash and survive my bad decisions and losing trades.
G. Not in love with particular stock or industry group.
H. Always on the hunt for opportunities in the entire equity market.
I. Step away from battle field. Avoid trading one week before and after earning announcement. Digest earning calls and company announcement before getting into it. When you gamble , the house always wins and you lose.
J. Rapid fire moment, does not lend itself to smart thinking.
K. Pressure is mother-of-all bad decisions, don't pressure yourself.
L. Never kick yourself for taking profit.
M. A money management tip: You get out, when getting is good, before you blow yourself up.
N. Its Ok to take a pass on a trade, listen to your inner Clint Eastwood, "Man got to know his limitations."
O. Assess your down-side before entering a trade, not your upside.
P. Always have 10% of your portfolio in cash, and consider yourself fully vested, if you are below 10%. Need to sell some positions to raise cash.
Q. Have a list of good stocks to buy from, look for pullback and be patient. Not having a list to pick from, is a good indication that you have not done your homework.
R. Refrain from trading on a volatile day, let the dust settle, and let the amateurs play. Enter a position when more odds in your favor. Playing earnings is a dangerous way to gamble.

mysidetrades

Saturday, October 20, 2007

Looking into Shorting these, I tell you why

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