[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
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.