Monday, April 1, 2013

Why I am still short the ES

I'll be honest and say that I haven't seen an ES quote in about ten calendar days. I have happened to catch some general market numbers when I'm passing by TV screens at lunch the last few days, I know my short is looking ugly. But here is why I'm still short:

  1. Roughly 13% of the current total value of the S&P  has been gained in the last 90 days, that seems a little extreme. Those types of moves rarely come with no pullbacks. So if I wasn't already short I would be shorting here, this really is the main reason for continuing to be short.
  2. Markets can only do three things, go up, down, or sideways. The odds of these three options are supposed to be random over the long haul; and in 2/3 or 67% of those outcomes, I can make money. Though the market has done nothing but go the wrong direction since my initial short back in the last week of December, I've still managed to cost average up my position by 40 points. I know from experience what I can do in sideways or down markets.
  3. From a trader's perspective, you can't lose 90 days in a row and then walk away, at least I can't. That's equivalent to selling your longs when the market crashes simply because you can't stand the pain anymore. But I'll be honest and say this has been a painful short and the reason why I'm only passively paying attention right now. I'll know when volatility is back. You can't wait for the market to turn ugly to put on a short, but again that's just this biased trader's perspective. I will also admit that at this point the goal has been modified to reclaiming a large part of my losses and no longer trying to break even, that will have to come in the long run and not this particular trade.
I rolled my two short contracts a few weeks ago and have yet to update my spreadsheet. I don't even know my current cost average. I know the rough number is I'm down about $9,000, so with two contracts a break even is 90 points away. That's actually not far fetched if there is a correction, but I'm not waiting for 90 points to pull the plug. If we got a down move or return of volatility I anticipate bringing in one contract well before then and attempting to trade around. If I get unlucky and pull in a short and the market continues to fall, then I've still got one short on.

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  1. If we do get a pop in vol, will you look to sell another put?

  2. Another good day to sell some premium against one of your short contracts on the /ES. With the gap down...maybe we have another 40 points of possible downside, which would put us around 1,500.

  3. I had sold a weekly 1520 strike on Wednesday night so will look to sell again on Monday during market hours unless we gap down Sunday night.

  4. I rolled my two shorts a few weeks ago, bought back at 1556 and shorted again at 1550. My current break even point on two contracts is 1476. I'm not envisioning sitting tight and hoping for a drop to that level, rather I hope to continue selling weekly premium and/or trading around this position to increase it to a minimum of 1500. If we get close to there on a pullback I might be willing to close out for a loss and then look to reenter later.

    Since I can't control what happens its hard to dictate what exactly I'll do. Hopefully Kim Jong fires a dummy missle on Sunday night 20 minutes after the futures open and I cover at 1500. Just kidding, I hope its 1475.

  5. May the trading gods give you favor!

  6. I also shorted ZB at 148 so any good movement on ES or ZB and I'll at least attempt to trade around a bit.

  7. I'm currently short 1 weekly 1515 put that expires tomorrow, and just sold an APR4 1480 strike put. My current break even is 1480 on two contracts. Hopefully the 1515 expires worthless tomorrow and I get to sell again late in the day for next week.

    This trade was upside down by -$12,000 at its worst last week with ES at 1590ish. As of this post I'm down about $6000. As I had posted recently, I'm not necessarily looking to break even on this trade. Getting back a large portion was the objective but I didn't have a set exit point either. I'm just kind of playing it by ear at this point.

  8. I think we are entering a good environment for you to keep chipping away at this position. I really have to commend your holding power on this. As you and I both know, on most things you can be profitable if you have the staying power to see it through.

    That is one thing I have learned the most over the past two year. I have given my self longer holding periods and use options to to trade around a position and it has paid off beautifully.

    I especially like what you are doing by using an index. I would not be as confident on an individual AAPL for example.

    Thanks for keeping us posted.