BOUGHT +3 STRANGLE TCK 100 DEC 08 5/2.5 CALL/PUT @.53

S&P 500

It’s interesting to see that my prediction as pretty accurate this morning. We are in fact trading in the 845 – 870 level on the S&P. After having so many large swing days in the market, this is good that we’re taking a breather. And then get ready for some more big moves probably after the US Thanksgiving holiday.

One stock that’s been lackluster lately is TCK. It is clearly not a stock in-play at the moment. This is a huge contrast to the times earlier when lots of bad news were hitting TCK and the share price tanked. While being out of sight likely, the price continued to drift down to some new lows. Unlike many of the players in the market, there just isn’t much swing in TCK even though we’ve been moving like 50 points on the S&P on a daily basis.

Upside: This record low price level and the lack of interest in the stock. It has to move one way or the other some time. Even though I have a bullish bias in TCK, I am using an options strangle to hedge my position. Just in case.

Downside: We might be stuck inbetween my breakeven price of 1.97 and 5.53 until December. The exact premium paid was 0.27 for the 2.5 Put and 0.26 for the 5 Call.

Teck Cominco Ltd.

The need for trailing stop: Expired November 2008 options post-hoc review

I have been trying to catch falling knives for a few weeks now. Every time I think we’re at a bottom, the market rally a bit to get my hopes up and then continue to drift down more. In retrospect, there are so many trading no-no’s I have broken with that dangerous mentality. My account is down significantly as of this writing and I have learned many old and new lessons throughout these weeks. In fact, I have demonstrated improving trading technique and psychology even as I was losing money overall (what an oxymoron). Rather I’m trying to comfort myself or not, the fact is that losing money is simply unacceptable in trading. So I will review these trades in this post and perhaps learn something from them.

As the title suggest, this is a post for post-hoc analysis of the options which I held into expiry (3 losing and 1 winning). I’ll do this chronologically. The longest Nov09 position I have is SLW Nov 2.5 Call. I have been a big fan of SLW as I’ve written and traded SLW numerous times.

Instead of writing paragraphs upon paragraphs, I’ve annoted my charts more than usual and will show more and write less in this post. I noted my entry point in each trade, and labelled the stop and post-hoc ideal exit/stop points.

Silver Wheaton

My effective entry point in my SLW Nov 2.5 Calls were at SLW share price of $2.90 (SLW closed at $2.81 Friday). I bought 2 Calls for $0.55 and at expiry, they are worth $0.325. A loss of $45 + $15 for commission as of this writing. I held on to my 2.5 calls and exercised them, so +200 shares of SLW for me.

Next up is ABB on the same day. The share price for ABB was at $10.31 when I entered. ABB closed Friday at $9.95. I bougt the three ABB Nov 10 Calls for $0.90. They are worth $0.05 each. A total loss of $255 + $15 for commission.

ABB Ltd.

Then we have TCK entered at TCK share price of $5.575. I bought two TCK Nov 5 Calls for $1.00 each and they are now worthless. A complete wipeout of $200 + $15 commission.

Teck Cominco Ltd.

Lastly, there’s this puny winning day trade in the last 40 minute of Friday. I bought a UYG Nov 3 Call for $0.55 and it expired for $0.95. A profit of $40 – $15 comission, so a total of +$25 so far. I held on to this call and exercised it. I have +100 shares of UYG to carry over the weekend.

Ultra Financials

As you can see, if only I have used trailing stops, I could have held onto some of the profits and not turn winning trades into a losing ones. I didn’t want to let the large swing in premiums stop me out from a big rally. That’s why I didn’t use trailing stop. However, the lack of subsequent follow-through and confirmation in the rally should have been a glaring alarm sign. I should have put in trailing stops from this lack of strength in the rally. Any counter-trend position should be carefully managed with tighter than usual risk management.

I have let my undying hope for a rally clouded my judgement. This stubborn need to be right is a very fundamental psychological flaw in trading. If I can’t stop doing that in the future, I might as well quit trading manually and focus on developing my quantitative financial engineering work. However, as I have noted, I think I’m improving lately and upon further reflection, I believe I have come up with a potential methodology to correct myself in the act … More on this as I develop on this technique.

BOUGHT +2 TCK 100 NOV 08 5 CALL @1.00

Teck Cominco Ltd.

Commodity Index

Just a plethora of horrible news for TCK lately. Last week on 11/11, Financial Post published an article about it. TCK gapped down on 11/12. Even the Motley Fool has an article titled “What the Heck, Teck?”

TCK share price seem to be settling in $5 – $6. So why the heck am I long now? Ignoring the hypes, the fundamentals of TCK still stand. See the Motley Fool article. It has $2.7 cash/share and 0.17 debt/equity ratio. Granted, it took on $9.8 billion of debt recently, about 4 times its current market cap.!

The technicals though, are looking good. On the daily chart, the VW-MACD is showing a positive divergence. The CO has reached an unprecedented low and is just heading back up.

Furthermore, the commodities are showing signs of a positive divergence too.

Upside: In addition to the above, Max Pain is at $30 ($10 for CBOE data) for November! Yes, $30!

Resistance: $6

Downside: Same reasons why TCK has dropped from $30 to $5. Possibility of defaulting on massive loan.

Support: $5

Bottom line: Max pain at $30 when we’re just below $6! TCK is a diversified miner, a value producing company. TCK and ABB are now my top choices in this struggling economy.