Friday, October 15, 2010


This was one of my worst months. I've got worse but still haven't made the time to recreate my trade history going back to mid 2008. I lost big on two trades and they had something in common. The first is the VXX trade which was a lack of diligence on my part. I didn't learn of the tracking disparity of this instrument until after I had long exposure via short puts. My original thought process back on 9/1/10 was that VIX wouldn't break 20 through SEP/OCT and I was willing to get long exposure if it did. At the time the VXX/VIX disparity was only about 2, so I sold 19 puts on VXX for .80 that put my cost average at 18.20. I figured this was a good enough proxy for VIX 20. So it turns out I was wrong anyway as VIX went as low as 18 and closed today at 19.40, but I lost much more than had VXX been a better proxy. The point is I entered in to a position without having full information, and that's not investing, that's gambling.

The second losing position that I'm not happy about, and not just because of the dollar amount loss, is the short AAPL call spread. In my initial post I said I thought this stock had a date with 300, but that I thought it would stall there. Why would you sell a short 300 call if you think the stock is headed that direction? This was another case of old habits of just putting on a trade without putting it through my trade worksheet to see if it makes sense. I've gotten back in the habit of putting on trades and THEN running them through my filter. So I did this, and what I found was that I would actually prefer to be long the 300/310 call spread for two reasons. One is that IV has a history of increasing slowly towards earnings and this OPEX closes out a day before AAPL has earnings, the second was the chart pattern that I believed was taking AAPL to 300. So I got up the next day to close out my short call spread and put on a long ratio spread. I ended up having to pay through the nose because the underlying opened up $4 that morning. I'd like to say this is a learning mistake and it won't happen again, but its already happened in the past, which means I'm not learning from my mistakes. This is simply a matter of discipline and laziness. So I humbly take my two losses this month and hope the pain will remain with me long enough to not make these two mistakes again. Between these mistakes and the unwarranted risk I took on last month with short calls, I've really gotten off track and need to regroup.

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