Wednesday, May 5, 2010


The last two days have been quite crazy and therefore I've tried as best as I could to be watching the market and focused on the breakdown and the potential rebound for buying opportunities.

If you visited SlopeofHope a couple of weeks ago, I identified a trade in MOS that I've been trading with great frustration.

At the time of writing the post, the stock was trading at $52.70.  I identified a stop at $53.25 and a target of $48.  I use options to short stocks typically so I bought puts.  As you might guess I was immediately stopped out of the trade within 15 minutes of putting it on!!! YUCK!

In fact, I believed enough in the trade set up that I actually put the trade on 2 more times and was stopped out each time within hours.

I'm posting this here because I want to encourage you as traders to stay with your convictions and always continue to minimize losses and continue examining your trades so you can maximize the opportunities when they actually come to fruition.  On Friday I saw the set up again as MOS hit the mid $52.50 area, so I re-entered puts on the position.  As the day wore on, Monday provided weakness and then Tuesday and Wednesday finished the trade.  As we went underneath my target of $48 I sold my put position.

Happily, I am pretty flexible and as MOS traded down to the mid $47.40 range I see pretty good support for MOS.  I have purchased June $50 calls on MOS and am now doing quite well since it is now trading at $49.65 as I type.  I will exit this long trade on a break above $51.75 and prepare to short again if it looks weak.

Keep in mind that Thursday is the big European vote, I probably will be in all cash with my trading account.

Again, I'm not posting this to say how great I am, I'm posting this to encourage you to examine these charts and identify pretty easily the areas of support where price simply hits a ceiling or somehow stops a rapid decent and then use that as a way to buy or sell momentum that breaks through those areas.  Finally, the lesson of stops is so important.  I limited my losses despite the fact that I had losing trades 3 times!!!  My one winning trade (now two) has compensated me for all of those small losses and earned significantly more.  I closed that short position out too, so it is on the books rather than some unrealized profit.  This is why we need to learn to limit losses and let winners run to your targets.

Check out the revised chart on MOS and see why I'm looking to sell near $52.

EDIT ----11:46AM - sold my MOS June $50 Calls at a +12% profit.  I may be leaving some on the table here, but 12% in an hour is nothing to throw away.   Profits are better than losses.