Friday, May 21, 2010

Bookkeeping: Sold Some Index Positions

Today and indeed this week has been quite fruitful; I'd say this was the best week of 2010 in terms of performance, not only in numbers but in technique and execution. I was able to communicate ahead of time in written word where I thought the market was heading and it pretty much did it to perfection. NAV is now at all time highs; I am looking at some 'growth' mutual funds and many have lost 10% in the past week coming into today's session - so I'm happy compared to what future peers are putting out. That is all I will say about that, because the minute I am too happy or content, mother market will smack me hard.


This morning I began to hedge long around S&P 1061... added a bit more 1062ish with TNA ETF (6% exposure) - two 3% tranches. I gave out my game plan and said if S&P 500 jumps over 1066 (flash crash low) I'd be more aggressive long, and if we broke 1057 I'd head for the hills. Around 1068ish I did add another 4% exposure in TNA. So I had 10% total TNA which is very aggressive for me, but was due to (a) trading opportunity and (b) small amount of individual long positions versus norm.

SPY calls (about 5% exposure) were added around 1070ish - normally these would have generated some big gains for us today but we have a situation where due to volatility the premium (price!) for any option was very high. And as the market rallies the volatility dips... so the premium (price) of the option falls all things being equal. Hence while you gain from the market going in the correct direction, you lose some as the premiums fall due to people becoming more comfortable with risk. That seems to be the case today. With some 17 or so S&P points this should have been a big winner for us but instead was just a moderate winner for reasons outlined above.


At this point I've cut about 40% of the SPY call position in the upper 1080s (about 12% gain) and cut 20% of the TNA ETF. The TNA ETF is up about 11.5% from my first tranche buy - cost was $41.57, and should sell $46.40 or so. In total the cost basis of TNA is $42.35 since I bought the next 2 tranches at higher prices.

Game plan from here is simple - yesterday I outlined some levels to work through from the upside for the market; the first of which is S&P 1094. I was/am hoping to see that level soon so I can sell more index exposure there. If that is sliced through, the next level is the 200 day moving average of 1102 or so - not sure if we get there or not. We do have Monday coming up which almost always means upside plus people will be encouraged by today's "action" (especially if we close near highs of the day) and the Fast Money guys will be in a lather tonight telling us of buying opportunities of the century blah blah blah. How quickly things change - 5 hours ago we were worried about end of the world, right? I am not thinking that far out - the "V" shaped bounces now infamous make little sense to me as they are so atypical in history, and so many individual charts are broken ... so it seems unlikely we get another. But you never know and if it happens we'll adjust. For now I'll go with more historical precedent which is a dead cat cursory bounce with a rollover after that.

No matter what happens, now that I have unrealized profits I will be moving my mental "stop loss" from levels mentioned this morning to S&P 1079ish so that I leave the day with gains in all index positions no matter what. More greedy or aggressive folks should I suppose wait for the Monday morning premarket run up and sell into that. The "easy money" bounce was all I was looking for and now that it happened, we get back to more tricky territory. I prefer easy to tricky. If we do not puncture 1079ish for the rest of the day, and close near the highs I will probably keep some index exposure on for Monday AM follies but definitely won't be carrying all that I carry as of now.

EDIT: fixed numerical typos!


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