Thursday, February 4, 2010

When you don't know what to do...

So since the complexion change in the market I have bought and sold out of SPY, making very small profits. I can't seem to find the holding power for the short trade. I am not sure where the market is going to go, it feels like there is still more downside, but I can not convince myself to take on any shorts with much conviction. It may also be the fact that I feel like I am late to the party. What if this is only a 5-6% correction and not a 10% correction. I do not want to panic out of my long positions, just because I see a little red.

I really wished I would had kept the 108 puts that I sold yesterday as they would had been good for better than a double. But like I said I can't seem to hold the short side. Tomorrow the all anticipated jobs number comes out and because of the fragile market conditions a bad number could be just the catalyst for the next push lower. But then again a good number could be the catalyst to continue up. Or it could be a non-event. Damn, I wish I had a crystal ball.

I really do not know what to do. I am kind of getting some analysis paralysis. I am also trying to figure out the best time to lift my hedges on my longs. But not knowing or having a thesis of how far down this market could really go before it starts going up again scares me. I know on the charts the next important support level is in the 1030-1040 range, but I am not willing to make any bets on it. I like the idea of selling call spreads, but I should had done that on the bounce to collect the higher premium.

So with that said, I am going to take a step back and for now I am not going to add any new positions going into the jobs number tomorrow. I will wait and see what happens. I will sit on my hands so to speak. I will just try to work through some of my positions as we have 15 days left until Feb expiration and I have a few positions that will expire.


  1. Unfortunately I've found myself trying to predict short-term movements, or at least guilty of watching more closely than usual and at least subconsciously I am forming opinions. I really like to analyze the market as a whole over the weekend when there is very little news and no ticker action to affect my opinion.

    I thought this was going to be more than one of the many 5-6% dips we've seen since March so I bought some SPY put spreads. If I'm wrong I'm wrong, that's the reason for the limited risk/reward spread. I won't be hurt if I'm wrong. But even if we don't correct further, I still have doubts that we'll see new highs. The market has gone from rallying on not so bad news, to trading sideways to slightly down on actual good earnings numbers. I don't see the short-term catalyst to take us higher so I'll be looking to sell call spreads instead of puts spreads or naked puts.

    However, all this being said, John Chambers has never been wrong in the ten years that I've been following the markets. If what he says is truly happening, then we might just be range bound until next earnings season.

  2. Your sentence "I don't see the short-term catalyst to take us higher so I'll be looking to sell call spreads instead of puts spreads or naked puts" makes a lot of sense. And I know this is exactly the mindset you have to have in a weak market. And I have been saying it, I just haven't been able to put my money where my mouth is. But I think taking a step back and disconnecting from the market for the day is going to help.

  3. Well the truth is I sold naked puts yesterday and not call spreads. I never like to see the position move against me, but I am OK with getting long the two names I sold puts on. Yesterday I was looking at some ideas for either naked calls or selling call spreads, but by the time I looked at the market today those plays would bring in far less than what I was analyzing. So I would either hvae to take the lower amount or move the strike prices down. In general, it doesn't make sense to sell the call spreads today. You should ideally like to do that on a day we're moving up, even though that is tough to do.

    I have to admit that I did make a big mistake here though. I put some money to work in the form of naked puts without first learning how to hedge those positions. Even though I don't mind getting long, I would still like a hedge in place in case they move drastically against me. I haven't made the time to attain the knowledge to know how to properly hedge yet, but I don't want to stay on the sidelines long-term until I can get there either.