Bull or Bust

a bull's view

January 21, 2016 – Much Better!

I had a sneaky suspicion yesterday may have been the bottom. Is it possible? Could over a 1,000 stocks hitting 52 week lows trigger a rally? Maybe, just maybe. The rise in oil didn’t hurt that’s for sure, but will it hold is the million (or billion) dollar question. I doubt it, at least not right now. I’m sure, much like everything else, it will continue to bounce around in the weeks to come. More than likely all the “shorters” out there are simply covering their shares thinking everything is pretty damn low and it’s just not worth the risk. Tomorrow and definitely next week will be a very important indicator as to how February will go.

I began buying options yesterday before lunch (thankfully) and pretty much sold them all this morning at significant profits. I indeed sold my Starbucks during early trading and right before the closing bell when the underlying stock price was around $59.22 I bought a bunch of the SBUX MAR 16 55 PUT. I believe this was a good call (or PUT haha) based on what the stock did after closing and after the earnings report came out. Whoa boy! Man…did the stock fall. Last I looked it was hovering around $56.80 again which seems to be its recent support level. Tomorrow morning should be interesting. Will it hold steady? Continue to plunge? Who knows, but my PUT may very well be ITM (In The Money) come 8:30 AM. It was high risk yesterday to buy a CALL the day before earnings, but it goes to show you sometimes the underlying is just too damn cheap to pass up. Implied Volatility becomes your enemy after an earnings report – you may experience a “volatility crush” which I will explain another day.

Some of you have noticed my trading strategy or habits have changed recently. It’s true and I am trying hard to desensitize myself to actually selling something. It goes against everything in my body to sell especially when I’m on a roll or up 83% like I was with SBUX this morning. Something inside me just wants to hold on and let it ride. I suppose it’s the risk taker in me and I imagine those of us who trade options probably all have this problem considering you have to be half crazy to do this. My significant other pointed out many months ago that when I run around the house screaming I just made 83% I’m actually full of s***. You don’t make the profit unless you actually SELL IT and turn it back into cash. It turns out I have a huge problem with this. Submitting a sell order has been hard for me and the inability to execute has cost me a significant amount of profits (cash). In fact, had I always sold when ahead I would have roughly $75,000 more in the bank today just from screw ups in 2015.

Disclaimer: there are times when selling is a horrible mistake. I have an infamous story about selling F, GE and AA on September 28, 2015 at 10:30 AM  and taking a freaking red bath with a $33,000 loss when six (6) business days later those same options were worth over $260,000. Yeah, I stopped trading and stayed in the dark eating pringles for a month after that. As Jim Cramer once said, “panic is not a strategy” and I panicked that day – right before October began a fantastic rally. So my rule about panicking is simple: don’t do it. If you find yourself panicking and you can feel your heart beating through your chest and you are picturing your spouse packing his or her bags and leaving forever do NOT do anything. Walk away and give it a day. No matter what. In my defense, I was sick and had fever on September 28th while attending a continuing education real estate course so I was not in the best position to be trading and should have done what?? Walked away. It was a Monday and by Friday I could have bought a Ferrari.

I let it ride too much and I need to AT LEAST take some off the top when ahead. I should write an entire article about taking some off the top. I have been practicing this week and it has worked out very well. Everyone needs to adhere to this most important rule. So yes, I sold ALL of my SBUX at an 83% gain this morning. Am I sorry? Hell NO! Have you seen the stock price tonight?? This is exactly what I’m talking about. Sure, it was a MAR option so I had plenty of time for it to recover, but why claw your way back to where you were this morning two weeks from now? Sure, it could have shot straight up and never looked back which is what it did last year, but I don’t believe 2016 is the year for taking risks when you’re UP 83%. I could have taken some off the top, but I knew earnings would go South. I just knew it because so far YTD this market hasn’t liked anything anyone has said and I was right.

Another fun fact: Back in October of 2015 I was up 223% on an SBUX option and foolishly didn’t sell it. I was watching its little life drain away and even when it was back down to a mere 64% gain and falling I still thought it would go back up. I ultimately sold it at a 30% loss. DUMB! As a trader you can get into this toxic mental state of convincing yourself of anything and it will eat you alive. Trust me. Better to SELL, take the profit, reset your bank account and live to fight another day. On rare occasions you will look back and say, “well s***, had I held on to it I would have made 130% instead of 60%” (actually happened), but it is more likely you will look back later and be damn glad you got out.

It is my amateur opinion to BUY SBUX if it gets anywhere near $56.00 or below and hold it forever. This is not a trade…it’s a lifer.

Stock and Option Trading