Monday, May 3, 2010

Closed BBY bull call spread

I've closed by bull call spread in BBY for a profit. The stock slid 5.2% high to low intraday on Friday. Today, so far, it has fallen 3.4% intraday.

Yes, I had the option of trying to repair the position, rolling over into a spread with a lower basis.

But I don't understand the fall, it has pierced a level of downside support, it is unbuttressed by any news reports. That's far too much blood on my account to sustain.


The close order executed with the stock trading at $44.97, up 0.1% from where I opened. So, on the stock price, the trade is a wash.

On the options spread, structured as long the May $45 calls, short the May $44 calls, the transactions gave a 7¢ per share profit, or 14%. That's for about 4 weeks worth of exposure to the risk. (Analysis from  when I entered the trade on April 7.

This is why I love options, at least when I'm not in a losing trade.

Now, the paper profits at one point where more than three times that. But, the spilled milk crying thing, nah. That's a losing strategy for sure.

My error in this trade lay in not getting out soon enough. The parabolic sar turned bearish on Wednesday of last week, and Person's Proprietary Signal the day before. Had I followed the pps, I would have avoided nearly 8% of decline.

I think exiting a position can be the hardest thing about trading. One of my maxims is: "Don't fall in love with your positions." But if the position is winning, you don't want to risk missing out on further profits. If it's losing, you don't want to admit your were wrong.

The antidote is to follow a purely mechanical system that has very strict criteria for entry, and that forces an exit at the first sign of weakening.


The Investor's Guide to Active Asset Allocation: Using Technical Analysis and ETFs to Trade the Markets

Martin Pring's detailed deconstruction of the economic cycle: What sorts stocks to look for at each stage of the recovery. A masterful analysis.



New to Private Trader? Check out the Reader's Guide.

New to private trading? Here's a look at How to Become a Private Trader.

No comments:

Post a Comment