Miserable week

The market finally underwent that correction (well, just a breather so far) that I had been anticipating for a couple of weeks now. Of course, I turned out to be exactly ONE day late...with the pullback starting the very next market day after my February SPY put options expired.  I learned many lessons about protecting profits, and telling the difference between a natural price pullback and a outright trend reversal.  In addition, I witnessed how perfectly rational moves can be quickly overpowered by irrational behavior in the stock market. Overall, I had a horrible week...erasing every cent I had made throughout the entire month. All I can do now is lick my wounds, learn my lessons, and make that money back.

As I had mentioned in my last post, the situation in Libya shot the price of oil sky high, instilling a lot of fear into the market, while boosting oil related stocks. GPOR was an example of this, rising 8.5% for the week. However, this served as a negative catalyst for the overall market, and the S&P 500 fell hard for three days before recovering some of those losses in light trade on Friday.  LULU, one of my best performers this month, gave back all its gains in a matter of days, triggering my poorly set stop loss before promptly bouncing back Thursday and Friday. After reexamining the chart, I realize I should have placed the stop loss about a dollar below where I had it. Drawing trend lines on the earlier consolidation period created a level of support that held perfectly. Unfortunately, I did not see this support previously, and my stop loss was above it. A $1000+ gain was suddenly turned into a $313 loss. However, the correction in LULU came hard and fast in heavy volume, with the upward bounce coming in relatively light volume, so I'm not sure how strong the support can hold. APKT also underwent a hard correction, but recovered and actually ended the week with a positive gain.  Lesson learned: price pullbacks are natural and should not cause reason to panic. Setting the stop loss points at reasonable prices will provide a safe cushion for natural pullbacks to occur and recovery to happen.

I don't get it...

Despite the mistakes I made with my long stock positions, the real damage to my portfolio came as a result of options. The general consensus is that options should not be toyed with by beginners, but I feel like a year of research and learning had provided me with a sufficient grasp of how options worked. Like many things, however, theory rarely applies to the real world. A previous post talked about how to play an earnings short squeeze. I used this strategy, but in hindsight (for now), I greedily used options to overleverage my bet.  Deckers (DECK) was set to announce earnings on Thursday afternoon, and I expected that they would beat expectations. My analysis (and firsthand experiences with how the UGG boot craze has not subsided...even I had bought a pair for someone in December) indicated a strong 4th quarter showing for 2010, so I had bought 5 March 19th DECK call options.  This essentially gave me control over 500 shares of DECK stock...around $45000. I stomached a treacherous price pullback throughout the week, confident that the earnings short squeeze would more than make up for the losses. After the close on Thursday, Deckers beat earnings expectations by 28 cents/share, and share prices rose. Friday morning saw DECK gap up to an all time high of $94.00, and I was elated. However, despite a strong day in the overall markets, DECK plummeted to $88.30 by the close, and the value of those options alone erased my gains for the month.  I probably won't be touching options for awhile...at least not until I have a set plan as to how to use them. Overleveraging with 5 contracts was just greedy, no matter how sure I was of my bet.  If it were stock, I would barely be buying 100 shares (equivalent to 1 option contract). I could have risked just $700 and controlled $9000 of stock. Just live and learn...no real strategy to talk about today, just a bunch of whining.

Friday, February 25th, 2011

Weekly Change: Down $3702.18 (-16.9%)

Daily Changes (Starting Tuesday, Feb 22nd):  -$1977.92, -$468.68, -$556.57, -$699.01 

Current Porfolio Value ($20000 on January 24th, 2011): $18096.05  (Down 9.51%)

February Performance: Down $937.51 

Market Outlook: Short term bearish, long term bullish. Uncertainty over Libya continues to push oil higher and instill fear into the market. Volume was much heavier on the down days than the lone up day (on the S&P 500 and Dow Jones Industrial Average), perhaps indicating that correction is not quite over. Positive domestic economic data continues to be positive, and the market's reaction to positive and/or negative news will be telling as to the viability of this bull market. 

Holdings:

APKT - 100 shares - $76.65/share

GPOR - 300 shares - $29.39/share

MDF  - 400 shares - $5.08/ share

ZAGG May 21 $10.00 Call - 5 contracts - $1.05

ERX July 19 $86.00 Call - 1 contracts - $12.60

DECK March 19th $90 Call - 5 contracts - $2.50

Trades: Tuesday, February 22nd, 2011 - Friday, February 25th, 2011

Sold LULU (100 shares) - Stopped out...however, bounced off of support that I had not seen soon after

Sold ARUN (100 shares) - Stopped out when price fell below the top of the gap (from last week's gap up)...price did recover somewhat

Bought GPOR (100 shares) - Added to position during a strong week

Bought DECK March 19 $90.00 Call (5 contracts) - Speculating on Thursday's earnings report...

An introduction and a little about me

Hey everyone, thanks for checking out this blog. I'm assuming readers are either stock market traders, or just casual financial enthusiasts  interested in the analysis and strategies of stock market speculation. In either case, you've come to the right place. I want this blog to not only be just me rambling on about the aspects of stock market strategy that I find interesting, but rather what THE READER finds interesting as well. By offering comments and suggestions, I can cater these discussions to topics that everyone can enjoy and benefit from. 


So a little about myself...

Me.

I'm Irfan. I'm a junior economics & financial mathematics double major at the University of Maryland. My goal in life is to become a successful hedge fund manager, and influence the world in a beneficial way.  Economics fascinates me in how it can use quantitative methods to analyze virtually any aspect of the world, from markets to human behavior to football to sex.  To me, being able to quantify and explain virtually any phenomena with numbers is so practical and effective.   I am an assistant football coach at a local high school, and utilized economic and mathematical reasoning quite frequently during the past season, using game theory and historical data to help the head coach optimize his playcalling.  With that being said, I really cannot blame anyone who at this point thinks I'm a total nerd. 


My interest in the stock market is actually relatively new.  I've always liked economics, but financial markets just seemed boring to me.  My dad would try to get me interested in the stock market, but I never gave it a chance. During the 2008-2009 financial meltdown, I would watch CNN in my dorm room and note the ever decreasing Dow Jones Industrials Average at the bottom of the screen, but never understood what it actually meant. However, about a year ago, my dad gave it one last shot, and asked me to research this investment strategy for his portfolio. I delved into some research halfheartedly, but after a few days, I was absolutely hooked.  For the past year I have read every book on investing I could get my hands on, watched CNBC and Bloomberg virtually every day, and have had a borderline obsession with understanding how the market operates and how to profit from it.  I began investing about $1000 of real money in July, and began applying the principles and strategies I had learned. After impressing my father enough, he recently gave me $20000 of his money to invest and trade, promising me half the profits.  Which brings me to this blog...


The purpose of this blog is to be able to share my ideas, thoughts, and opinions about stock market investment/trading/speculation strategies, and give readers a chance to follow my portfolio.  By publicizing every trade I make, along with the reasoning for doing so, I feel like I'll force myself to make well informed trades.  If I ever do make a dumb trade, I WILL talk about it on here, and I WILL expect each and every reader to ridicule me.  I'll post the value and holdings of my portfolio at the end of every blog post, as well as any trades I had made since the last post, and the reasoning behind each trade. However, this is not just some public trading diary I am keeping for my own benefit. Most of my posts will be about investment strategies, speculation ideas, the economy, hedge funds, etc. In addition, I'll be more than happy to talk about virtually anything readers want to discuss (assuming I get readers). I am NOT here to provide stock picks or otherwise promote/trash companies (unless readers voluntarily trust my own portfolio selections), nor will I dismiss a trading strategy as ineffective without giving good reasons for doing so. I personally blend bits and pieces of many strategies, and have an open mind for that reason.


I'll be discussing my personal trading philosophy and strategy in my next post, as well as my take on the many strategies that are out there. Until then, enjoy! 


Tuesday, February 8th, 2011
Daily Change: Up $130.46 (0.6%)
Friday's Change (Just to brag): Up $1,034.54 (5.2%)
Current Porfolio Value ($20000 on January 24th, 2011): $21720.73  (Up 8.6%)
February Performance: Up $2782.51 (yes, that does mean I made some miserable rookie mistakes in the last few days of January)
Market Outlook: Bullish but have been anticipating a correction since Friday, and today's penetration of the DJIA's upper channel line may be a sign that the market is overextended and that a correction is imminent.


Holdings:
APKT - 100 shares - $70.56/share
LULU - 100 shares - $78.39/share
GPOR - 200 shares - $24.53/share


Trades: Tuesday, February 8th, 2011
-Sold APKT (100 shares) - Took profits by reducing half of my position, mainly to reduce margin in anticipation of a market correction soon
-Sold ZAGG (500 shares) - Same reasons as APKT, except that I sold off my entire position. ZAGG, a long time holding of mine, is in an upward trending base but is far too volatile for me right now. I'm probably going to wait for a breakout before reentering, and allocate this cash elsewhere.


Trades: Monday, February 7th, 2011
-Sold RVBD (100 shares) - Took profits (probably too early) to reduce my use of margin, in anticipation of a market correction soon
-Sold LULU (100 shares) - Same reasons as RVBD, except only reduced half of my position