Wang’s Happy Trading

It was a very volatile week. Although volatile, the general direction of the market was “UP”. Last weekend, in my Market Forecast, I said,

“For the new week, I think Monday is going to be very important. The market needs to close above the 10-day MA to make me feel more comfortable. Without a solid move up on Monday, the market becomes more vulnerable to test last week’s lows. Of course, the Fed’s rate decision on Wednesday will continue to affect the market’s mood. I think, at the very least, another quarter-point cut is coming. A half-point slash would probably excite the market.”

We did have a solid Monday. Then, I said,

“In order to see the 10-day MA start to turn up, I think we’ll need to see SPX rise above that 1375 level this week. Closing above it would be an even stronger indicator of a bottom.”

It turned out that the Fed did cut the interest rate by half-a-point. SPX also finished above the 1375 level, causing its 10-day MA to turn up.

Let’s take a quick look at the week that was:
On Monday, the market did make a solid move up, with the Dow up +176.72 points and SPX up +23.35 points! On Tuesday, the market recorded some modest gains as it waited for the Fed to announce its rate decision. On Wednesday, the Fed cut the rates by half-a-point. The market initially rallied, but finished lower on worries about bond insurers. On Thursday, reassurance from US’s #1 bond insurer gave the market reasons to cheer, as the market resurrected the rally that it didn’t have the day before. On Friday, even though GOOG earnings was shy of the estimates, the market continued the rally and finished with solid gains.

For the week, the Dow was up +536.02 points; SPX gained +64.81 points; and the Nasdaq added +87.16 points.

Because of the volatility, we traded lightly this week:
POT Feb 140 calls, PYPBH, at $7.3, +32.7% (partially out)
FSLR Feb 200 calls, HJQBT, at $14.5, +26%
POT Feb 140 calls, PYPBH, at $7.5, +36% (all out)
JOYG March 60 calls, JQYCL, at $7, +27.3%
GOOG Feb 620 calls, GOOBD, at $0.6, -93%
EMKR at $15, +22.2% (partially out)

All, but GOOG’s earnings bet, were in the GR$$N!

The GOOG trade was encouraged by the fact that the charts of major indices (the Dow, SPX, and Nasdaq) were all indicating higher prices for Friday. I was thinking that if the market was signaling to go higher, GOOG would probably need to go up as well. The market ended up rallying without GOOG. In retrospect, it was not a high-percentage trade, as the estimates were so high. Even I said it myself on Wednesday, “…GOOG’s report probably needs to be all positive, plus a little more, to inspire a positive reaction.” In the end, the “player” in me chose to have a little fun and ignored my own cautious logic. The smarter play might have been to cash some of it out before the earnings and make a smaller bet, since GOOG was up more than $20 just before the closing on Thursday. A even smarter play would have been to cash half of it out late Thursday and buy some puts to turn the trade into a straddle. One would have had to cash out in late morning on Friday to come away with a small gain, though. Again, the premiums were so high on this one, it was not a high-percentage play. Oh well, you win some and you lose some. Remember the lessons and move on to the next trades.

The trades left open were:
GDX Feb 52 calls, GDXBZ, at $4, $1.6 (open, avg cost $2.8)
Friday close: $0.74; unrealized gain/loss: -73.6%

EMKR, common shares, at $12.27 (open, partially out)
Friday close: $15.1; unrealized gain/loss: +23.1%

BG, common shares, at $123.9 (open)
Friday close: $125.19; unrealized gain/loss: +10.4%

STP March 60 calls, STPCL, at $5.3 (open)
Friday close: $4.9; unrealized gain/loss: -7.5%

Notice that we are starting to make pure stock plays now, in addition to the options plays that we do. So, for those of you who don’t do options trading, you now have somethings to follow along in our published trades.

Hope you’re enjoying your weekend! I’ll be back tomorrow with my weekly Market Forecast.

Good night and HappyTrading! ™