Sold -1 COF 100 SEP 09 35 PUT @1.30, Mark 35.84

I've finally managed to offload my COF puts. This position was entered two weeks ago at 1.90, mark 35.89. The total loss is \$60 + \$15. This is yet another poor trade because I didn't exit when my stop was hit. This has been happening way too often lately while I'm trying to catch the top (another big mistake). While it might be obvious, but it's now clear to me that playing with a limited capital is detrimental to my trading psychology. The commission is too much in comparison to my position size. So I was often inclined to hold when I should have been nimble.

The market finally moved downward with a sizable move today. S&P500 tanked 20 points in an hour this morning. However, on a second test of the 1000 level, I noticed a divergence on the TICK and COF wasn't making a low like the market. That's when I decided to unload this position as we're at the bottom of the recent channel. In addition, the long term support at \$35.45 (Figure 2, pink line) should be a tough nut to crack in the short term.

My only position left is my puts in BC. I am now going to tie my hands away from my trading platform and step back to developing my trade. On the other hand, my quantitative finance work has been progressing nicely and I should be able to publish some useful updates soon.

Update: COF closed at \$35.09 today. I was early again. It's pretty clear by now that my strategy is flawed. The more reason why I need to put my head down and really start thinking.

[caption id="attachment_1742" align="aligncenter" width="500" caption="Capital One Financial"][Capital One Financial][][/caption]

[caption id="attachment_1743" align="aligncenter" width="500" caption="Capital One Financial"][Capital One
Financial][][/caption]

[Capital One Financial]: http://traderpau.files.wordpress.com/2009/09/2009-09-01-cof.png [Capital One Financial]: http://traderpau.files.wordpress.com/2009/09/2009-09-01-cof_prop.png

Bought +1 COF 100 SEP 09 35 PUT @1.90, Mark 35.89

My limit order was executed at the open today for Capital One Financial (COF). I placed this yesterday at the close and totally forgot about it...

While we are testing a long term resistance (Figure 1, pink trendline at top of chart) at about \$36, there is no confirmation yet. The recent bullish momentum could very well sweep COF along to break it.

On the other hand, a look at S&P normalized by US Dollar Index shows the market is also pushing up against a significant resistance. I will make another post about this after the close today as a market analysis.

Thirdly, the divergence in sentiment based on high yield stocks or junk bonds v. market price is as obvious as ever. Although this has been the case for a while now, so this perspective doesn't hold much weight anymore. The market simply can be irrational beyond anyone's guess.

Entry: \$35.89

Stop: Above \$35.00, by next Tuesday.

Target: \$33, by next week.

I've updated my risk metric for options to incorporate the time parameter. A more thorough analysis can be gleaned from Figure 3 with the expected value of the options at 1, 2, and 3 weeks from now.

To be more precise, the Profit/Loss on August 28 is -\$41.5 if COF = \$36, and +\$110.6 if COF = \$33.

So the Reward / Risk = \$110.6 / \$41.5 = 2.7 \< 5. The R/R is predictably horrible. That's why I'm setting a tight stop on this. We'll see how today's push higher plays out and I'll probably ditch this sooner to minimize my risk.

[caption id="attachment_1706" align="aligncenter" width="500" caption="Capital One Financial"][Capital One Financial][][/caption]

[caption id="attachment_1707" align="aligncenter" width="500" caption="Capital One Financial"][Capital One
Financial][][/caption]

[caption id="attachment_1708" align="aligncenter" width="500" caption="Risk Profile"][Risk Profile][][/caption]

[Capital One Financial]: http://traderpau.files.wordpress.com/2009/08/2009-08-21-cof_prop.png [Capital One Financial]: http://traderpau.files.wordpress.com/2009/08/2009-08-21-cof.png [Risk Profile]: http://traderpau.files.wordpress.com/2009/08/2009-08-21-cof_risk.png

Posted 21 August 2009 in stocks.

Sold -2 COF 100 AUG 09 33 PUT @.30, Mark 34.25

I've finally liquidated my COF shorts. The bid/ask was 0.25/0.35 and I placed a limit order at 0.30. It was executed immediately. This leads me to believe we'll be heading much lower today because of the market's eagerness to take my puts.

There are two reasons for dumping these puts. First, is that the August expiry is this Friday. The time decay this week has been brutal. A new rule for options trading is that close any long options before the last 8 days or so til expiry. From then, the time decay really accelerates.

Secondly, we gapped lower today at the market, but there is no follow through to the weakness at all. In fact, the market is making a logarithmic rise and holding above 985 on the S&P by 10:30am. The TICK has also crossed +800 multiple times; whereas the lowest we've got so far in the TICK is -728.

With the support for COF at \$34.00, there is very little I have to gain when the market overall is holding above 985 and seem to be going higher as of now. So I've decided to dump this position.

I purchased these puts at 2.20 about two weeks ago. Total loss. \$380 + \$15 = \$395. This is yet another trade that got away from me. I am now going to limit my trading until I can find my edge again.

One mistake I've been making is neglecting the market environment. For one, we've been in a bull market until proven otherwise (probably not anymore since last Friday). Second, the market has been very choppy and trading in a range this month. These are factors that I need to consider in my future trades.

[caption id="attachment_1701" align="aligncenter" width="500" caption="Capital One Financial"][Capital One Financial][][/caption]

[Capital One Financial]: http://traderpau.files.wordpress.com/2009/08/2009-08-19-cof.png

Posted 19 August 2009 in stocks.

Bought +2 COF 100 AUG 09 33 PUT @2.20, Mark 32.10

I've entered a short on Capital One (COF) to substitute my accidental exit on VNO today. On a closer comparison of the two, COF seems to be more overbought than VNO.

We're in a rangebound day again in the market, but we actually spent most of the time in the lower range of the channel. This could be a good sign or it could be another bear trap.

Entry: \$32.10

Stop: \$32.80

Target: \$28

Reward / Risk = 4.10 / 0.70 = 5.85

[caption id="attachment_1672" align="aligncenter" width="500" caption="Capital One Financial"][Capital One Financial][][/caption]

[caption id="attachment_1673" align="aligncenter" width="500" caption="Capital One Financial"][Capital One
Financial][][/caption]

[Capital One Financial]: http://traderpau.files.wordpress.com/2009/08/2009-08-06-cof.png [Capital One Financial]: http://traderpau.files.wordpress.com/2009/08/2009-08-06-cof_prop.png

Posted 06 August 2009 in stocks.