Spydertrader's Jack Hershey Equities Trading Journal III

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Quote from tradingbug:

OMTR looks like a break out this morning. I had it in a pennant formation for the past week at the right trend line of the IT channel.
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Could you post a chart of OMTR so that I can see how you're drawing your channels for this? Thanks. :)
 
Here's a very outside the box trade I'd like to post for anyone who wants to comment. I think I may be a bit early, but we'll see. I am short (bought puts). When volume picks up again, if it's not increasing red, I'll be out.

TNG


<img src="http://www.elitetrader.com/vb/attachment.php?s=&postid=1603909">
 

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For this specific instance, there was no dryup volume before the break out. It may be possible that as skill level increases, dry up volume may not be a requirement for fast pace cycles......just a thought.
 
Would you elaborate ...? What puts do you own? When did you open them? What was your thinking process?

As of today's closing I don't see an entry, neither short nor long. I wonder what you've seen.
Quote from thenewguy:

Here's a very outside the box trade I'd like to post for anyone who wants to comment. I think I may be a bit early, but we'll see. I am short (bought puts). When volume picks up again, if it's not increasing red, I'll be out.

TNG

bcsi chart
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Quote from cnms2:

Would you elaborate ...? What puts do you own? When did you open them? What was your thinking process?

As of today's closing I don't see an entry, neither short nor long. I wonder what you've seen.
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Sure, I'd be happy to. Please feel free to post any comments, it's all very much appreciated.

At the gap, the dominant move was obviously up. Then, after the pennant formed, it tried to break out to the upside. When it dropped on heavy volume, I took that to be a change in gaussians (R2R) because the volume was definately increasing red over the previous days. However, I'm not sure if technically it should be as high as the black spike was, but I don't require that. After the big red volume down, it looks like a pretty clear retrace (decreasing black all the way down). Yesterday, volume was about as low as it can go, so that makes me thing that SOMETHING is going to happen soon. Yesterday's bar had little momentum, and closed near the low, so that with the low volume and the R2R make me think the next big move will be down. Also, with the fed meeting on Tuesday, and today being friday I expect some fear driven selling at some point before then. This seemed like a likely target with a gap up and not a very solid base to work from.

I bought Sep 85 puts, because I won't hold this longer than next week, and I wanted them to be ITM and not worry about the greeks too much (this is where I still need to do more research). By $85, the stock will have invalidated my down channel, and I should be out anyway, so I won't let the options go OTM. I've noticed this month that OCT options aren't moving too much at all, so I've been trading SEP longer than I normally would.

Thanks,

TNG

PS. I picked up the calls for 4.70 yesterday.
 
See bellow my take on BCSI channels as of 9/13/07.

What was your trade plan before opening this position? I mean what did you anticipate to happen in order for you to hold on, and what would've signaled you to exit your position?

As nobody can pick tops or bottoms, when you try entering on a pt3 you should wait for a confirmation signal before opening your trade. I.e. you can wait for a RTL BO, a BO of previous bar end, and a volume increase.

Regarding options trading: I recommend understanding well at least implied volatility, theta and delta. You bought the put contract with BCSI about $81.5, so you payed a $1.2 premium with one week to expiration. As of Friday closing of $83.77, your options' bid is at $3, with a premium of $1.77 that will be evaporate rapidly next week: time decay (theta) is high and increasing, implied volatility is high and decreasing.

<img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=1606671>

Quote from thenewguy:

Sure, I'd be happy to. Please feel free to post any comments, it's all very much appreciated.

At the gap, the dominant move was obviously up. Then, after the pennant formed, it tried to break out to the upside. When it dropped on heavy volume, I took that to be a change in gaussians (R2R) because the volume was definitely increasing red over the previous days. However, I'm not sure if technically it should be as high as the black spike was, but I don't require that. After the big red volume down, it looks like a pretty clear retrace (decreasing black all the way down). Yesterday, volume was about as low as it can go, so that makes me thing that SOMETHING is going to happen soon. Yesterday's bar had little momentum, and closed near the low, so that with the low volume and the R2R make me think the next big move will be down. Also, with the fed meeting on Tuesday, and today being friday I expect some fear driven selling at some point before then. This seemed like a likely target with a gap up and not a very solid base to work from.

I bought Sep 85 puts, because I won't hold this longer than next week, and I wanted them to be ITM and not worry about the greeks too much (this is where I still need to do more research). By $85, the stock will have invalidated my down channel, and I should be out anyway, so I won't let the options go OTM. I've noticed this month that OCT options aren't moving too much at all, so I've been trading SEP longer than I normally would.

Thanks,

TNG

PS. I picked up the calls for 4.70 yesterday.
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cnms2, thanks very much for taking the time to reply.

Since Thursday when I posted that trade I have discussed it with several traders and reviewed it myself. The general consensus, supported by what you wrote, is that I was too early. My view now is the set up was nice, and worth watching due to the R2R, but instead of thinking that change is coming, I should watch for change coming. If this was supported by a BO and red inc volume, then I should enter.

With regards to the options, I understand the fundamental concepts of all the greeks with no issue. Where I need more experience how their profile's look. I know that the last week before expiration theta is going to drop, but I was counting on being out by Monday or Tuesday if it hadn't started to move. While the IV is high, I wasn't expecting it to drop much in three or four days. Looking back at a volatility chart, it doesn't seem to have moved much in the last month, but you mentioning it here is a warning to me that maybe I don't understand the intricacies of IV as well as I should.

So given the high theta and IV would you have sold calls instead (assuming you believed in the set up)? The reason I didn't is because I am worried that Tuesday may spark a rally and I wanted more limited downside on the trade.

For anyone following, I was stopped out on Friday, after the price increased and there was a increase in black volume. I am glad I posted, however, because I am learning a lot from this example.

Thanks cnms2!

TNG
 
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