Massacred by DHI Nov 35 Puts

S

SuperJFRO

I'm not sure why I'm even writing this message, maybe for ideas for improvement in my strategy.. maybe just for pure moral support.. or something, but for whatever reason I feel compelled to write!

I've been doing pretty well trading puts on the fading homebuilder stocks the last few weeks. Mostly TOL and DHI. TOL had been the more wild swinger as of late, and I had the feeling I may have overstayed my welcome as far as homebuilder puts went, I closed out all my positions and covered my short on TOL on monday, but then got a hankering yesterday and figured I'd grab a few DHI contracts (NOV 35 Puts) since it hadnt been too volatile and it might not get away from me too fast should things go against me.

What the HELL happened today (Wednesday)?! The damn stock just would NOT stop going up! For the life of me I couldnt find any news I felt was sufficient for that kind of movement, and like a moron I kept holding onto the puts trying to figure out what was causing the movement, so i could gauge how lasting the effect might be and how solid the movement really was. Finding nothing of substance, I saw how cheap the puts had become.. and decided to grab a few more! Bad idea... and I had just read and agreed with a thread on here with regard to never averaging down. And yet I did it anyway!

I really need to develop a set of hard and fast rules to adhere to so that I dont have to sit around and ponder while I get slaughtered. Something just kept telling me that the run in the stock had to end.. but it kept moving up till the closing bell. More than 7 percent! Is it all optimism over rebuilding from Katrina? DHI doesnt even list Louisiana as a state that they build in. And if the true Damage of Katrina is the estimated 26 billion dollars, I'm willing to bet that less than 10 of is damages to residential structures and their contents, and I'm also willing to be that half that 10 is in the contents, and not the structures. The remaining 5 billion in damages (what of it actually gets rebuilt at all) will be split up amongst all the builders and repairmen in the region.. so how can we justify such a large movement in this particular builders stock on that basis?
 
yup as reported on bloomberg, realmoney, and streetinsight. Also on marketwatch.com and wsj. Its speculation of rebuilding and the homebuilders benefiting. It was also reported on cnbc.

Quote from SuperJFRO:

I'm not sure why I'm even writing this message, maybe for ideas for improvement in my strategy.. maybe just for pure moral support.. or something, but for whatever reason I feel compelled to write!

I've been doing pretty well trading puts on the fading homebuilder stocks the last few weeks. Mostly TOL and DHI. TOL had been the more wild swinger as of late, and I had the feeling I may have overstayed my welcome as far as homebuilder puts went, I closed out all my positions and covered my short on TOL on monday, but then got a hankering yesterday and figured I'd grab a few DHI contracts (NOV 35 Puts) since it hadnt been too volatile and it might not get away from me too fast should things go against me.

What the HELL happened today (Wednesday)?! The damn stock just would NOT stop going up! For the life of me I couldnt find any news I felt was sufficient for that kind of movement, and like a moron I kept holding onto the puts trying to figure out what was causing the movement, so i could gauge how lasting the effect might be and how solid the movement really was. Finding nothing of substance, I saw how cheap the puts had become.. and decided to grab a few more! Bad idea... and I had just read and agreed with a thread on here with regard to never averaging down. And yet I did it anyway!

I really need to develop a set of hard and fast rules to adhere to so that I dont have to sit around and ponder while I get slaughtered. Something just kept telling me that the run in the stock had to end.. but it kept moving up till the closing bell. More than 7 percent! Is it all optimism over rebuilding from Katrina? DHI doesnt even list Louisiana as a state that they build in. And if the true Damage of Katrina is the estimated 26 billion dollars, I'm willing to bet that less than 10 of is damages to residential structures and their contents, and I'm also willing to be that half that 10 is in the contents, and not the structures. The remaining 5 billion in damages (what of it actually gets rebuilt at all) will be split up amongst all the builders and repairmen in the region.. so how can we justify such a large movement in this particular builders stock on that basis?
More...
 
Quote from SuperJFRO:

I'm not sure why I'm even writing this message, maybe for ideas for improvement in my strategy.. maybe just for pure moral support.. or something, but for whatever reason I feel compelled to write!

I've been doing pretty well trading puts on the fading homebuilder stocks the last few weeks. Mostly TOL and DHI. TOL had been the more wild swinger as of late, and I had the feeling I may have overstayed my welcome as far as homebuilder puts went, I closed out all my positions and covered my short on TOL on monday, but then got a hankering yesterday and figured I'd grab a few DHI contracts (NOV 35 Puts) since it hadnt been too volatile and it might not get away from me too fast should things go against me.

What the HELL happened today (Wednesday)?! The damn stock just would NOT stop going up! For the life of me I couldnt find any news I felt was sufficient for that kind of movement, and like a moron I kept holding onto the puts trying to figure out what was causing the movement, so i could gauge how lasting the effect might be and how solid the movement really was. Finding nothing of substance, I saw how cheap the puts had become.. and decided to grab a few more! Bad idea... and I had just read and agreed with a thread on here with regard to never averaging down. And yet I did it anyway!

I really need to develop a set of hard and fast rules to adhere to so that I dont have to sit around and ponder while I get slaughtered. Something just kept telling me that the run in the stock had to end.. but it kept moving up till the closing bell. More than 7 percent! Is it all optimism over rebuilding from Katrina? DHI doesnt even list Louisiana as a state that they build in. And if the true Damage of Katrina is the estimated 26 billion dollars, I'm willing to bet that less than 10 of is damages to residential structures and their contents, and I'm also willing to be that half that 10 is in the contents, and not the structures. The remaining 5 billion in damages (what of it actually gets rebuilt at all) will be split up amongst all the builders and repairmen in the region.. so how can we justify such a large movement in this particular builders stock on that basis?
More...


Todays end of day price movement in stocks is either sign of extreme bullishness or manipulation. I covered all my short positions. I would'nt go short anytime soon, since my view is that the markets are being extensively manipulated. imo they're (whoever "they" are) afraid of foreigners pulling out of the stock market, and the ensuing sell-off so they're propping it up. Massive devastation, ongoing war, consumers tapped out, rising inflation, GDP revised down (http://www.usatoday.com/money/economy/gdp/2005-08-31-q2-revised_x.htm), Crude rallies ..... and stocks rally? .....and bonds rally?. Something does'nt add up. I'll be on the sidelines watching this B.S. When I see weakness I'm going to work in a major short position for the eventual free-fall.

btw, you won't see this type of report from the govt.
http://quote.bloomberg.com/apps/news?pid=10000103&sid=aFduHjC9ASjw&refer=news_index
 
Super,

Looks like you made every newby trading mistake in the book. Everybody makes these mistakes while they’re learning so don’t worry too much. Look at this as an opportunity to learn, identify your mistakes, write them down, be honest about what happened, and have the discipline to never repeat them.

Here are some observations to work with:

1. Never blame the market for your losses.
2. Never trade on the basis of news (or absence thereof). News is intended to keep journalists employed and retail punters on the wrong side of the market. Your P&L is a function of how well you participate in the price action not how good you are at gathering information. If the market is going up who cares why, get long!
3. Don’t look for reasons why things happen. You’ll never figure out the markets. It is a waste of time trying. A lot of newbies make this mistake because they want to be right. You’ll become like these other morons who blame market manipulation for losing (ie: being wrong). Focus on reading the market action. Learn how markets move. Learn to read the signs.
4. Understand your trading vehicle inside and out. Options and very powerful and flexible. Buying OTM puts is a crude leveraged short position.
5. If as a newby you have had a good run with a strategy you should start getting nervous. Cut back on your size and start looking for something else to trade. Protect the easy profits you’ve made or the market will take them off you.
6. Learn how to read a chart. DHI is horribly oversold (-30% in 1 month). Everybody in that trade was probably looking to cover their shorts and/or get long yesterday. Looks like most did. You had to be the only bidder on those OTM puts, I hope you didn’t pay the ask.
7. Always, always, always have a pre-determined price at which your trade idea is obviously wrong (for whatever reason) before you eneter the trade and never, never, never change this price. If the market hits that price you get out immediately.
8. If the market is going strongly against you should consider reversing your position. If you got out of your DHI puts yesterday when you were obviously wrong and bought some calls you would have been up on the day.
9. Trade small until such time that you become consistently profitable for a period of months. You won’t be afraid to take losses if you keep them small, and taking losses is the only way to learn.
10. Start building some rules from what you learn and look to develop a system/method over time.

Good luck to you.
 
TOL bounced off its 100 day SMA, and HOV off its 200 day SMA or EMA. Both of those lines are usually good support for any stock, on a daily or weekly chart. You got greedy - the homebuilders already had a long pull back.
 
Quote from SuperJFRO:

I'm not sure why I'm even writing this message, maybe for ideas for improvement in my strategy.. maybe just for pure moral support.. or something, but for whatever reason I feel compelled to write!

I've been doing pretty well trading puts on the fading homebuilder stocks the last few weeks. Mostly TOL and DHI. TOL had been the more wild swinger as of late, and I had the feeling I may have overstayed my welcome as far as homebuilder puts went, I closed out all my positions and covered my short on TOL on monday, but then got a hankering yesterday and figured I'd grab a few DHI contracts (NOV 35 Puts) since it hadnt been too volatile and it might not get away from me too fast should things go against me.

What the HELL happened today (Wednesday)?! The damn stock just would NOT stop going up! For the life of me I couldnt find any news I felt was sufficient for that kind of movement, and like a moron I kept holding onto the puts trying to figure out what was causing the movement, so i could gauge how lasting the effect might be and how solid the movement really was. Finding nothing of substance, I saw how cheap the puts had become.. and decided to grab a few more! Bad idea... and I had just read and agreed with a thread on here with regard to never averaging down. And yet I did it anyway!

I really need to develop a set of hard and fast rules to adhere to so that I dont have to sit around and ponder while I get slaughtered. Something just kept telling me that the run in the stock had to end.. but it kept moving up till the closing bell. More than 7 percent! Is it all optimism over rebuilding from Katrina? DHI doesnt even list Louisiana as a state that they build in. And if the true Damage of Katrina is the estimated 26 billion dollars, I'm willing to bet that less than 10 of is damages to residential structures and their contents, and I'm also willing to be that half that 10 is in the contents, and not the structures. The remaining 5 billion in damages (what of it actually gets rebuilt at all) will be split up amongst all the builders and repairmen in the region.. so how can we justify such a large movement in this particular builders stock on that basis?
More...

this one was very clear. yesterday you had a big drop in interest rates which is always good for the homebuilders plus many thousands of new homes will have to be built fast and homebuilders build homes. on top of that buying puts on stocks already down big opens you up to snapback rallies.
 
Quote from SuperJFRO:

.. so how can we justify such a large movement in this particular builders stock on that basis?
More...

This is your problem, you are trying to justify it. You can't and it doesnt matter.

Previous points about defining risk prior to entering a trade is trading 101 stuff. Also if you are trading homebuilders, you should educate yourself on the link between them and interest rates (not fed funds either).
 
Thanks for the input fellas. I'm trying to learn... learning a lot of lessons the hard way. I'm trying to keep my optomism through some severe punishment the last couple of days.. today being no better. It's tough. How long did it take you guys to turn consistently profitable?
 
Quote from SuperJFRO:

Thanks for the input fellas. I'm trying to learn... learning a lot of lessons the hard way. I'm trying to keep my optomism through some severe punishment the last couple of days.. today being no better. It's tough. How long did it take you guys to turn consistently profitable?
More...

options are a poor way to start out in this business. they are too unforgiving.
 
super,
dont look back
youve been doing well, these days happen. sounds like you may want to do a little more research before the open
 
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