New Open Positions

I opened 3 new positions yesterday:

• Buy to open MER Feb 52.5 Put @$3.30 (when the stock is around $53.88)
• Buy to open SLM Feb 20 Put @$2.20 (when the stock is around $20.44)
• Buy to open CTX Feb 25 Put @$2.40 (when the stock is around $26.69)

- PersianCat04 (Millionaire-in-progress)

New Position - COH

After the Christmas season, retail growth had not been good as compared to last year. I expect more bad news to be released.

Yesterday, I buy to open COH Feb 30 Put @1.90 (when the stock is around $30.77). I expect the stock to break new the low (at $29.22)

COH is a mid-tier luxury retailer. As the market is heading towards recession the mid-tier luxury retailers would be greatly affected, more than the mass market retailers.

Others stocks (all for shorting) in my radar:
TGT - though it is supposed to be a mass market retailer, somehow, they are are not doing as well as WMT.

RYL, CTX - Housing stocks

COF, FNM, MER, MS - Financial

- PersianCat04 (Millionaire-in-progress)

Guidelines for Intraday Play

A friend of mine asked me for some guidelines as to how I pick intraday plays. So instead of replying to him alone, I thought it would benefit more people if I document it in my blog.

Here are the guidelines:

Pre-Play Preparation

• Typically, I keep abreast of the developments in the various industries/sectors to know what moves the market and individual stocks and by how much.
• So when a news is released, I would need to quickly assess where the stock/market should be moving and estimate by how much. Some stocks need a little piece of news to move a lot while others need a big news to move. e.g. Tech stocks such as RIMM, AAPL, moves a lot.
• For shorting, look out for weak stocks that gapped up and the price is not justified. (However, you would need to be aware of the short rally (over a few days) even for a stock that had been dropping).
• For long play, look out for strong stocks that gapped down.

The Options Play

• Typically, if I play the options, I would like to see a movement of at least $1.50 from my entry point so that I could make at least $0.75 (assuming every 10cts will give me 5 cts in options). i.e. I could make $75 per 1 contract of options.
• I normally play more than one contract per play. (However, for those who are new to this game, please play 1 contract at a time until who have gained enough experience and confidence. If you play big, you could lose big.)
• Choice of options - front month options with the strike price close to the market price, typically out-of-money options.
• Entry and exit depend on the chart formation based on a 5-min chart over a 5-day period and the price movement.
• Identify the support and resistance over a five-day period (if needs be, over one or 3 mths)
• Wait for the right setup before entry.
• Mental Stop Loss must be identified (based on the 5-minute chart) and strictly followed.
• Be aware of time-decay especially if the options is less than 5 days before expiry.

Mental Preparedness

• You need to have a clear mind when you play this game. This is extremely important as you need to cut your losses immediately after your stop loss is triggered. No distraction should be allowed from your trading/home environment.
• While you may have multiple targets, be prepared to close your position immediately and lock-in your profits once any one of your targets is met and the stock starts to reverse. (I assume you have less than $25k in your fund).
• One should not be greedy when playing this game.
• As this is an Intraday play, you must close within the day. The trick is to catch the short trend till it is about to reverse or wait for it to reverse until it is about to reverse again.

- PersianCat04 (Millionaire-in-progress)

Christmas Rally

Christmas Rally
The market had been rallying for the past few days. It would be interesting to see how far the market indices could go by the end of the year. The market volume would be low this week till the end of the year.

Typically, a Christmas Rally is expected every year and it did not dissappoint investors most of the time.

Under normal conditions, I would long some of the strong stocks (or at least the stock index) during the Christmas holidays. However, for this year, I would be cautious with my trade during this period.

January Effect
This is another bullish trade. Typically, weaker stocks would go up during the first 5 days of January. Investment funds would sell their weaker stocks and buy better performing stocks by the end of the year. This was done to show that their funds invested in strong stocks (called window dressing). It was also done to offset their loss making stocks against taxes. During the first 5 days of January, these same funds would start to buy the weaker stocks (those they think would outperform the market) again. Because of the sheer volume involved, the weaker stocks would appreciate in price.

Personally, I am not sure whether this would happen. For the overall market, I am still bearish.

Basically, I am still looking for bearish play most of the time.

- PersianCat04 (Millionaire-in-progress)

Intraday Trade - MER

MER gapped up today based on news that GE buying over their lending unit and Temasek buying an equity stake. The stock is still a weak stock. However, with the coming holidays, the market tends to end positive. The stock went up more than $2.00. Then CNBC announced that Temasek is buying MER at $48 - a huge discount the current market price (about $57) then.

• Buy to open Jan 55 Put @$2.30 (when the stock is around $56.75)
• Sell to close @$3.60 (when the stock is around $53.81).
• Made 56.5% in less than 2 hours.

The Strategy:
Look out for weak stock that had gapped up but cannot justify its high price.

It is a good Christmas bonus.

- PersianCat04 (Millionaire-in-progress)

Position Update

Last Friday, closed the following before lunch time:

• MER Bear Call Spread @$0.50 (Slightly in-the-money). Made 69.8% over 5 days.
• LEH Bear Call Spread @$3.95 (Deep in-the-money). Loss 62.5% over 8 days.

Last Thursday, closed:

• RYL Bear Call Spread @$1.33 (In-the-money). Made 7.9% (due to time decay) over 8 days.

No open position left.

- PersianCat04 (Millionaire-in-progress)

Intraday Play - BSC

BSC had an earnings results today before market open. The results was bad and yet the stock gapped up. I expected the stock to drop. Bought Dec 90 Put for $0.85. The stock did dropped. As at 1:00am EST, the options appreciated up to $2.70. Could easily get $2.00. But my greed sets in. Didn't think that it is enough. The stock had a short rally thereafter. Luckily, the stock did managed to drop again and I managed to close at $1.55 or a 82.4% profit (over 2 hrs ++).

I still need to do some rewiring of my mental state.

- PersianCat04 (Millionaire-in-progress)

Position Updates

Tommorrow, GS will be releasing its earnings results. It is likely that the outcome will move financial stocks either way. As such, I closed my position in JPM to lock-in my profits. Anyway, I will still have LEH and MER to play.

Close MER straight Put play at a small loss but replaced it with a Bear Call Spread. Also closed CTX as the stock was not moving in my direction and Housing stocks seemed to want to have a short rally. As this week is an Expiration Week, I would minimise leaving any Straight Call or Put options overnight (due to the waterfall effect of the options premiums)

Closed Positions
CTX - Sell to close Jan 25 Put @$2.50. Profit $0.05 (2.0%) over 5 days
JPM - Sell to close Jan 45 Put @$2.40. Profit $0.80 (50%) over 5 days
MER - Sell to close Jan 55 Put @3.10. Loss $0.20 (-6.1%) over 3 days

New Positions
MER - Bear Call Spread Dec 55/60 Call @$2.35 (when the stock is around $56.58)

Previous Positions Still in Play
RYL and LEH (Both Bear Call Spreads)

- PersianCat04 (Millionaire-in-progress)

Is Santa Claus Rally coming?

The overall market is still currently bearish. It is now abt a week before Christmas. The Santa Claus rally that is expected every year has not materialised yet. Whether it does or not would partly depends on the outcome of the earnings results of the following financial plays:

• GS (Tues, BTO)
• MS (Wed, BTO)
• BSC (Thur, BTO)

The market would probably look out for further negative surprises from the above stocks which would send the stocks and perhaps the overall market lower. It would also be looking for excuses (any positive news) to provide a rally till the end of the year.

- PersianCat04 (Millionaire-in-progress)

Intraday Play - AAPL

AAPL is a good stock. It has gone up significantly to reach its all time high last Friday. But somehow, it pulled back to form a shooting star on Friday. The shooting star showed that the stock had reached a state of indecision. The RSI and stochastic indicators are on the high side and are already pointing south.
The probability is higher for AAPL to head south before breaking its all-time high again.

Today, AAPL was given an upgrade so AAPL gapped up above Friday’s close. The overall market was weak. It seemed a good setup was being made for shorting. I waited for the stock to go below session low after 10:00am EST before I shorted AAPL.

• Buy to open, Dec 190 Put @$3.65 (when the stock is around $190.17)
• Sell to close @$5.45 (when the stock is around $187.20 - Though it was not at the best prices but it was good enough).
• Profit = $180 per contract or a 49.3% gain for less than 2 hrs play

AAPL could still go down further over the next few days but I just want to lock-in my profit and have a better sleep.

- PersianCat04 (Millionaire-in-progress)

Open Positions - An Update

Sell to close MER Jan 60 Put @$6.40 (when the stock is around $55.90)

• Profit = 100% (Over 3 market days)
• Close this position earlier to lock-in my profits

Buy to close the TGT Bear Call Spread Dec 55/60 @0.30 (when the stock is around $51 ++)

• TGT have a strong support (52-week low at $50.25). Close this position because I am not willing to wait for another 6 days to collect the $0.30 per options. Could better utilise the funds for another play.
• Profit = 36.2% (over 5 market days)

Buy to open MER Jan 55 Put @$3.30 when the stock is around $56.80.

- PersianCat04 (Millionaire-in-progress)

Reflection - Who are you trading against?

In the initial period when I am still green in trading, I thought that when I play a trade, I am trading against other fellow traders. If I make money, they lose money. After going through some tough trades and reading more, I realise that I am trading against the Market Makers more than I am trading against fellow traders. And I thought I got that part right of my trading knowledge right !!!

Well, I am only partly right. As I gained more experience, when I played the right strategy at the right time, I realised that I no longer trade against the Market Makers. Actually, I am trading against myself - trading against my own trading rules, trading against my self-discipline, trading against my trading plan and trading with my greed and fear.

As the market is with me and my unrealised profits increased, I may be itchy enough to move my targets (not entirely wrong if I move the stop loss too) without placing the stop loss. The Greed sets in. I want to earn more. There were occassions when my profits started to slide and the charts showed a reversal, I keep hoping that the market will reverse again so that my profits will increase again. Very soon, my unrealised profits turned to losses. I keep hoping. As my losses increases, my Fear sets in. I fear that I lose more. I closed my position. The market then reversed. My confidence dwindled. I start to blame myself for a lot of things.

Thank God, I managed to overcome that challenge most of the time now and my trades improved. There are more challenges to overcome. It will take time. I need to be patient and persevere.

Till my next reflection ....

- PersianCat04 (Millionaire-in-progress)

Fed + Other Central Banks

The Feds and some Central Banks create a scare (at least to me!) at 9am EST yesterday when they announced some packages to help provide liquidity in the global financial system. The market immediately rally wiping off most of my gains from my current outstanding positions.

Fortunately, the market corrected itself and resumed its downslide. The package was deemed to be too small to made a dent in the financial market.

I also added another position shorting LEH in view of their pending earnings results on Thurs morning. I was expecting the earnings results to be bad or just meeting expectations. In the current weak market, LEH would then slide further.

• Bear Call Spread, LEH Dec 60/65 Call @$2.20 (when the stock is $60.68)

On hindsight, I should have position myself just before market close (for earnings play) instead of shorting too early in the day. LEH had a short rally before the market close yesterday.

- PersianCat04 (Millionaire-in-progress)

Post-FOMC

The FOMC announced a 0.25% rate cut. As expected, the market tanked.

Made 4 new trades (though not at the best prices) after the announcement:

• MER - Bought Jan 60 Put @$3.20 (when the stock is around $60.80); Target $50.50
• JPM - Bought Jan 45 Put @$1.60 (when the stock is around $46.36); Target $40.68
• CTX - Bought Jan 25 Put @$2.45 (when the stock is around $24.73); Target $17.77
• RYL - Bear Call Spread Dec 25/30 Call @1.60 (when the stock is around $26.26); Target $19.51

The charts for all the 4 stocks showed that the stocks are about to reverse. The FOMC announcement just expedite the reversal. The target are all 52-weeks low.

Actually, there are many weak stocks to short. Cannot play too many as I may not be able to cope.

Not reported before:

• TGT - Bear Call Spread Dec 55/60 Call @$1.55 (when the stock is around $54.98) - Played on 7 Dec and still in play.

- PersianCat04 (Millionaire-in-progress)

Pre-FOMC meeting

The FOMC will announce the next round of interest rate at 2:15pm EST. The market is expecting a 0.5% rate cut. If the FOMC announced a 0.25% rate cut or below, the market is likely to go another round of downward slide. If the FOMC announced a 0.5% rate cut, the market will scrutinise the languauge used and decide how to move. If the FOMC announced a 0.75% rate cut - all hell will break loose (so to speak). The market might rally but be cautious as the market might realised later that the economy might be worse than it seems (then the market dips).

I'm looking for the right opportunity (perhaps today) to short the following stocks:

• JPM
• MER
• RYL
• CTX

LEH will announce its earnings results on Thursday, 13 Dec (Before market open).

- PersianCat04 (Millionaire-in-progress)

MBI Play

Yesterday, MBI was halted within 5 mins after the market opened - pending news. When it resumes trading, the stock spike upwards. Since it is a weak stock and the news should not translate to such a huge jump (almost $8 spike), waited for the stock to reverse. I drew the Fibonacci levels. I enter on the 5th candle (5-min charts). Bought Dec $35 Put @$2.40 (when the stock was $35.95).

I waited till just before 2:30 pm (EST). At that point, the RSI and stochastics were very low. The stock consolidate somewhat. Typically, just after 2:30 pm, stocks might just start to reverse. Made a decision to lock-in my profit and sold my Puts for $3.20 (33.3% profit over a few hours) . As it turn out, the stock went down slightly further before it made a short rally till the end of day.

For those who might think that making $80 for one option contract is peanuts and is not worth the while, think again. For beginners, I always encourage playing small and earning peanuts. When you have consistently made profits (could be peanuts) with your trades, you can slowly increase the number of contracts.

For example, 10 contracts of MBI Put options (as above) would cost you $2,400 of capital but it gives you $800 profits for a few hours work. So those who are new, my advice:

Think Big, Start Small and slowly but surely Play Big.

If you start playing big when you are not good in your trades yet, you will also lose big.

So, how many contracts did I play yesterday? That's for me to know, and for you to find out (if you even bother ;)

- PersianCat04 (Millionaire-in-progress)

5-yr freeze on subprime-mortgage rates

Yesterday, after the Bush Administration intervened in the market by preventing the Adjustable Rate Mortgage from being reset for 5 years, the market reacted positively. The main mid-term beneficiaries are the housing lenders as they would delay the foreclosures of mortgages and provide more time for the house buyers to repay their loan/installment. I would refrain from playing banks, mortgages lenders and housing stocks until the market have fully absorbed the news (or least until next Tuesday when the Feds decide their next move).

However, yesterday's move by the Bush Administration does not change the weak housing landscape. Among the negative news:

• Moody reported that the U.S. housing market will fall into deep recession next year, with home prices dropping up to 35%.
• Just as starters, Luxury homebuilder Toll Brothers posted its first quarterly loss in 20 years. I am expecting more such news from the other builders.
• LEN sold part of its landbank at 60% discount though they retain the right to buy back at latter date.

Retail Stocks
Retail stocks are also expected to be weak due to expected weak consumer demand. We need to monitor this closely as the Christmas spending is not over yet. There is no plan bailout for retail stocks at the moment.

Among the stocks I am following are TGT, COH and JWN. TGT reported yesterday that it lowered its expectation for the next quarter. I would refrain from shorting WMT as it is a company targeting the mass market. In economic downturn, the middle income earners might have to downgrade themselves and shop at WMT while the mass market will cut down on their spending at WMT. COH focus on the middle income market and sells discretionary items (items that would be in the low priority to buy in an economic downturn).

- PersianCat04 (Millionaire-in-progress)