[caption id="attachment_816" align="aligncenter" width="500" caption="S&P 500 versus First Solar 1-min"][/caption]
[caption id="attachment_817" align="aligncenter" width="500" caption="First Solar weekly"][/caption]
After breaking the 820 support on the S&P 500 2 days ago, the market dived into the abyss today as I suggested this morning. Frankly, the mid-day looked alright and I thought we wouldn't go down anymore.
Turns out I was wrong (I stayed on sideline as planned). The market capitulated in the last hour. In particular, Citigroup sank to \$4.71. My short call at \$8.20 would have made a killing had I not get stopped out. Oh well, I'm not complaining. Although my portfolio is way down, I am just glad that I managed my risk and covered all my short puts a couple of days ago. In hindsight though, I really should have hedged my position more eagerly.
Anyway, back to this entry. Why? After failing to pick the bottom so many times, why the heck am I entering now? (This is going in my rule book, no picking top/bottom)
Do I think this is the bottom for FSLR? I don't know. Why did I enter this trade? Because if offers good risk/reward and probability.
Upside: January 2009 expiry date with 50% probability of expiry for this 70 strike. Support is \$75 for FSLR set in 2007 but we never even came close to it in this historic downleg in the market. Today marked a new low of \$86. Thus, my 70 strike is a stink bid. And being paid \$13.20 for this stink bid? I compared this risk/reward to a few strong companies I liked and this OTM put price is the highest (since I'm shorting).
Resistance: \$100. But I don't really care since this is a stink bid and I have limited upside.
Downside: If we do break \$75, then all hell breaks lose in this. We are still in a severe and monumental market crash. I don't have cash to buy the shares if this is put to me in January.
Bottom line: This is a high probability trade. Stop is just below \$75.
**Update:** I am going to liquidate this position tomorrow. Bill from [BillCara.com kindly shared his insight] on this trade. > When you prepare for a trade like this, you want to look at the charts > of the peer group, look at their support levels as well. Then you need > some other set up to help you make a decision. Maybe the Stochastics > have bounced off zero for a couple of the peer group? Maybe the RSI-7 > is well down for them all for the 10-minute, 60-minute and 1 day > chart? Something, other than guessing, has to be the primary factor. > Unhedged, I don't know I would have picked the January's though > because the market is still crashing, and I don't see enough of a set > up to cause me to put on that trade. I like the trade because you are > selling volatility and the time decay will eat up those put buyers, > but unhedged I probably would have extended the time frame a bit > unless it was my plan to have the stock put to me as part of an > acquisition strategy based on the company fundamentals and quants. I also didn't think this thoroughly myself. I simply cannot stomach the potential drawdown in FSLR. Even my own trendline analysis shows it can go to \$80 on this down run. I should wait for confirmations of strength before heading in at this point.
: http://traderpau.files.wordpress.com/2008/11/2008-11-20-spx-fslr.png : http://traderpau.files.wordpress.com/2008/11/2008-11-20-fslr.png