Weinstein Trading and Fading

Quote from Mike Okistini:

However the market is always right and stocks do exactly what they are supposed to do.

You are trying to convince yourself really hard with the following but think it through:

- "once they cap the leak the stock will pop" why? is that written into the law somewhere?

- "the stock cannot go bankrupt" - who cares about bankruptcy. You will go bankrupt if the stock dropped to $20 so you should care less about the fortunes of BP and more about yourself. It does not matter what will actually happen with BP, it only matters what PEOPLE THINK will happen as the sentiment is enough to push down a stock.

- "litigation takes years, oil prices holding up BP, BP is larger than BP America, etc.." these are all excuses on your part to justify why the market is WRONG for dropping so much. BP could snap back to $40 if the market has a strong rally and oil hits $80, it could also just be a lot of short covering today since the momentum slowed down. It could be that the World Cup is starting or it could be that the Gores are divorcing. It could be 100 different things so the worst mistake is trying to justify staying in when it is raging against you and then adding more risk. You were down $5k, good time to get out.

Not trying to put salt in the wounds but it would have been fine if you just kind of turned a scalp into a major position and realized the mistake but this is a lesson for all of us. When a trade turns SUBJECTIVE and we think we know more than the market or try to tell the market what it should do, that is when we lose the most money. Also never martingale a subjective trade hoping for a bailout.
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Obviously the market agreed with Mike and piggie2000
 
Quote from Mike Okistini:

What you are doing is trying to argue with yourself to convince yourself that you were right and the market was wrong. You are trying to justify your actions to yourself so you do not feel any responsibility for the trade despite the large loss. This is a common mistake we all make when we have a big trade go against us. However the market is always right and stocks do exactly what they are supposed to do.

You are trying to convince yourself really hard with the following but think it through:

- "once they cap the leak the stock will pop" why? is that written into the law somewhere? The oil has been running into the ocean for almost 60 days and we are close to 60-70 million barrels of oil leaked and you think that capping it now will shoot the stock back to $40? Maybe, but you are saying it with so much certainty clearly your trade is no longer objective and that is the first step to huge losses.

- "the stock cannot go bankrupt" - who cares about bankruptcy. You will go bankrupt if the stock dropped to $20 so you should care less about the fortunes of BP and more about yourself. It does not matter what will actually happen with BP, it only matters what PEOPLE THINK will happen as the sentiment is enough to push down a stock. People are boycotting the gas stations and BP is seen as the devil by most people. Fair or not that is going to affect perception and whether or not someone will buy the stock. You don't think large funds were dumping the stock all the way down to get out of it and separate themselves? Why would they rush back in now, just because a leak was capped or it is at new lows? If you think BP should be fine and not go bankrupt, that is fine, but if you are alone in your thinking or the sentiment is strongly against you, why fight it?

- "litigation takes years, oil prices holding up BP, BP is larger than BP America, etc.." these are all excuses on your part to justify why the market is WRONG for dropping so much. BP could snap back to $40 if the market has a strong rally and oil hits $80, it could also just be a lot of short covering today since the momentum slowed down. It could be that the World Cup is starting or it could be that the Gores are divorcing. It could be 100 different things so the worst mistake is trying to justify staying in when it is raging against you and then adding more risk. You were down $5k, good time to get out.

Not trying to put salt in the wounds but it would have been fine if you just kind of turned a scalp into a major position and realized the mistake but this is a lesson for all of us. When a trade turns SUBJECTIVE and we think we know more than the market or try to tell the market what it should do, that is when we lose the most money. Also never martingale a subjective trade hoping for a bailout.
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Excellent post Mike. Just to reiterate below.

"However the market is always right and stocks do exactly what they are supposed to do."
 
Still trading BP and still long

I made some good gains today even if the end results that are closed out do not show it. I also tried to make some moves when it appeared that it was going to trend but was shut down each time. In the end I had a good day and I had some covered calls that were closed out that was a hedge in case the stock moved down after the close yesterday. It was not needed as the stock once again gapped up but it worked as the NAV did increase once again today. Only trades today are BP related.
It will be interesting to see the time decay on the June options. I have 35P and a couple 25P going into Monday that I expect will fall quite a bit especially if the stock doesn’t roll over off the bed on Monday.

BP + 1198 which I bought in after hours yesterday with the thought that we were still underpriced. I closed some at a very good price in the 34.50 range in premarket and some not so good after the open around 33.50ish but it worked well
Jun 33P + 17
Jun 35P – 215
Jul 22.5 P + 370
Jul 25P + 82
Jul 27.5P + 1694
Jul 30P + 3
Jul 34C -1903
Jul 37C – 1128

+ 118
 
Anything close to ~ 40 is a good short IMO.

These kind of events/moves almost always re-visit the lows before they turn (if they turn at all :])

Good Luck.
 
Quote from Mike Okistini:

What you are doing is trying to argue with yourself to convince yourself that you were right and the market was wrong. You are trying to justify your actions to yourself so you do not feel any responsibility for the trade despite the large loss. This is a common mistake we all make when we have a big trade go against us. However the market is always right and stocks do exactly what they are supposed to do.

You are trying to convince yourself really hard with the following but think it through:

- "once they cap the leak the stock will pop" why? is that written into the law somewhere? The oil has been running into the ocean for almost 60 days and we are close to 60-70 million barrels of oil leaked and you think that capping it now will shoot the stock back to $40? Maybe, but you are saying it with so much certainty clearly your trade is no longer objective and that is the first step to huge losses.

- "the stock cannot go bankrupt" - who cares about bankruptcy. You will go bankrupt if the stock dropped to $20 so you should care less about the fortunes of BP and more about yourself. It does not matter what will actually happen with BP, it only matters what PEOPLE THINK will happen as the sentiment is enough to push down a stock. People are boycotting the gas stations and BP is seen as the devil by most people. Fair or not that is going to affect perception and whether or not someone will buy the stock. You don't think large funds were dumping the stock all the way down to get out of it and separate themselves? Why would they rush back in now, just because a leak was capped or it is at new lows? If you think BP should be fine and not go bankrupt, that is fine, but if you are alone in your thinking or the sentiment is strongly against you, why fight it?

- "litigation takes years, oil prices holding up BP, BP is larger than BP America, etc.." these are all excuses on your part to justify why the market is WRONG for dropping so much. BP could snap back to $40 if the market has a strong rally and oil hits $80, it could also just be a lot of short covering today since the momentum slowed down. It could be that the World Cup is starting or it could be that the Gores are divorcing. It could be 100 different things so the worst mistake is trying to justify staying in when it is raging against you and then adding more risk. You were down $5k, good time to get out.

Not trying to put salt in the wounds but it would have been fine if you just kind of turned a scalp into a major position and realized the mistake but this is a lesson for all of us. When a trade turns SUBJECTIVE and we think we know more than the market or try to tell the market what it should do, that is when we lose the most money. Also never martingale a subjective trade hoping for a bailout.
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Interesting points. I won't say they all apply to me as I never believed the price could not drop further (I took the stop on much of the trade) but I predict the odds and I don't try to predict the future. If the odds favor a gap up the next day in what I consider to be extreme good chance I will load the boat up. That is what I did and it didn't work out so I moved on.

Near the end of the day I loaded up again although I did hedge with writing calls because the IV was so high that I calculated the odds of having the IV drop and making money on both to be worth lowering my payoff if it simply gapped up strongly higher. As it turns out it moved up over $3 and I was looking for $2-2.50 as the sweet spot.

As it turns out I was off by a day and that was one important day.....

I think the odds favor that we have seen the low put in or near the low. Also as far as BK goes it really would be very far removed from the realm of possibilities. For one it doesn't matter how much it cost in terms of the spill. Just for the sake of argument lets say it turns into $500 billion. BP America goes to the creditors and the main BP is now somewhere in the ballpark of 50% (actually higher but this is a nice safe easy number) of the valuation on the books of the day before the spill. To get any more you have to litigate in London and be able to show that the main limited company owner should have a liability for what the American limited company did. At that point you have major politics as a defendant would have to be able to convince a London court to basically puts the screws to the English (and more) economy even if you could find (which I am unaware of) justification to pierce the corporate veil and hold the London BP responsible. Good luck with that.

The drop in price is in part media driven IMHO and as a result when the plug the leak that will drive up the price. So yes my focus in terms of timing has been the plugging of the leak. Wednesday had many things going for it. Tuesday was the third day down in a row which included a gap down and a close that was not at the LOD. Wednesday was expected to have an improvement on the recovery and that could have lifted the stock and in fact the stock did recover some early losses in pre market trading.

What I discounted was the "flash crash" effect and that obviously should not have been discounted and in fact I expect at some point to see another stock like this and will look for that as well. CDOs purchases cased the writers to buy puts to hedge which caused the option MMs to hedge by selling the stock and that got the snowball rolling. It was beautiful and perfect and what I lost was more than made up for by what I learned

I spent a lot of time trading BP and I believe my understanding on the risk of litigation is up to speed as well as the valuation of the company. So I will continue to trade this stock and expect it to be north of 40 no later than the first part of September. It does not even need to get that high for this to turn into a really good stock for me to have traded overall. So while the hours have been long I look forward to trading this company next week.

Best to you and thanks again for taking the time to post

Robert
 
Quote from [Proximo]:

Anything close to ~ 40 is a good short IMO.

These kind of events/moves almost always re-visit the lows before they turn (if they turn at all :])

Good Luck.
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Thanks for your post and I would be fine with that. I would not be shorting for more than intraday (I think I have shorted every day for the last week or so along with going long and holding an overall long bias)

I would be loading up the boat again if it goes sub 30 again absent some other event between now and then. I doubt it is going to get there. My best guess is that obama and company tone it down after the meeting with BP management as England is going to IMHO increase the "shut the hell up" pressure. maybe even nancy P will get the memo....
 
Quote from Kevmeister:

Excellent post Mike. Just to reiterate below.

"However the market is always right and stocks do exactly what they are supposed to do."
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If the market is always right why is there always a buyer and a seller for every trade? Actually a better question is why would anyone (especially a daytrader where nothing about a company changes within a day) make a trade thinking the price is going to move in their direction? Why is the price not already there?

You can call it what you like, inefficiency, being wrong, etc.. but doesn't everyone think they are "smarter" or have the odds in their favor that they are the first to figure something out compared to the market? If not why would anyone put money at risk?

What about just about every other day that I have traded BP? was the market wrong and I was right then? Why does it have to be about the market being right/wrong. It is nothing more than a way to calculate the odds of a price change. As the odds are in my favor increase I increase my relative exposure. This does not make it a bad trade. A trade is not good or bad based on the results but rather if it has an edge or not.

My trading on Wednesday my have been bad but it was not because I lost money but it would be bad as a result of if I did not trade correctly. There is a difference.

have a great weekend

Robert
 
Quote from ~~~:

Obviously the market agreed with Mike and piggie2000
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What makes you think so? Did they make money? I don't know that they did because I don't recall seeing their results of trading the move. I would be fine if they did and others in the chat room made money shorting BP while I was long and I can say that the market agreed with them.
 
Quote from piggie2000:

Yes robert i strictly day trade it.You are sadly mistaken as i have friends in destin,fla and they say its devastated as the oil has scared all off. And to compare exxon valdez with this is like comparing a f-16 to a cessena.Valdez was in a small area and affected few people. This is massive and long term. Obviously the mkt agrees with me.Robert the only way you'll ever grow as a trader is to obey the mkt signals and not become emotionally involved.
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Well I would agree that emotion needs to be removed as much as possible. I would not agree that I am emotionally attached to BP and in fact I have been both long and short BP every day for the last week or so.

I have a long term long bias but that is based on odds not emotion. I could care less about BP beyond that.

I am not sure what you mean by long term but if you mean more than a year or two you may want to look into the clean up efforts and what beaches are closed as a result. Also oil (hydrocarbons) biodegrade and if nothing was done to clean it up it would be all gone in a year or two relatively speaking anyway.

As far as florida goes, If a hotel is on a beach and the beach is not closed because there is not a problem due to oil and the hotel loses half the customers the hotel is going to have a very hard time recovering lost income from BP. At least in the sense that it is going to make the losses for BP never ending. Being harmed by what people see on the media and having a cause of action against a party is not the same thing.

About the first week in July I expect to be hearing some good news coming out of the gulf (along with some more bad news) but the story will start to get old and the price will stabilize if I am correct in my assessment of the situation. I guess we will all find out soon enough. I have been and continued today to write put options with OCT as the expiry month. I don't claim it is a sure thing or anything like that but I believe the odds favor it and there is an edge in writing them.
 
For the long term investor, fundamentals and news that affects the fundamentals of a company are very important. Long term investors generally hold much smaller positions than day traders and close their position at an 8-10% loss.

Day traders need only focus on the price action and ride the coattails of whichever side is currently winning. If one side has been winning for a long time, joining the other side can work well as long the other side demonstrates signs of weakness. Assuming the other side will become weak because they've been strong too long is a dangerous game, best played with very tight stop losses.

Every one of my large losses came from thinking about fundamentals or about what should happen based on news, or based on a very strong move having to reverse when I think it should reverse.

I trade crude oil futures and when economic news comes out I don't even care what the news is because the price action tells me the more important information which is how the larger market interprets the news. When the crude inventories come out, I really don't want to know if they're bullish or bearish numbers, because that never seems to matter when all is said and done and, if anything, knowing those numbers are bullish or bearish has often kept me out of very profitable trades. Thinking price has run too high or too low has also kept me out of very profitable trades.

I'm still working to overcome these biases, and as a day trader the less I pay attention to the news and the fundamentals, the more profitable my days are.
 
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