SOLD -100 UYG @4.49

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I sold my 100 shares of UYG because it was bought on margin last Friday when the call option was exercised. The effective share price I bought was \$3.55. I sold it for \$4.49 today. A profit of \$94 - (\$7.5[option fee]+\$15[exercise fee]+\$5[stock fee]) commission. Clearly, the commission made this trade a bad one. I didn't know TOS charge me \$15 for exercising options.

I sold at \$4.50 because it's a resistance level and we tested it a couple times this morning without breaking it. Although the risk/reward at \$4.50 still remains favourable, I sold because I don't want to use margin money. As of this writing, UYG has broken \$4.50 to \$4.67. I believe \$5.00 is a good target and possible \$5.7 in the near term.

Furthermore, I still have my trump card in the financials. My C options strangle is doing quite well now that the government is pumping money into Citigroup.

Update: After writing a big piece on trailing stop yesterday, I totally forgot to apply it myself. I really should have used a trailing stop in this case since I thought \$4.40 was a good stop. UYG is now trading at \$4.85 without much drawdown. At least this is a small position.

[Ultra Financials]:

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.

[caption id="attachment_857" align="aligncenter" width="500" caption="Silver Wheaton"][Silver Wheaton][][/caption]

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.

[caption id="attachment_858" align="aligncenter" width="500" caption="ABB Ltd."][ABB Ltd.][][/caption]

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.

[caption id="attachment_860" align="aligncenter" width="500" caption="Teck Cominco Ltd."][Teck Cominco Ltd.][][/caption]

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.

[caption id="attachment_868" align="aligncenter" width="500" caption="Ultra Financials"][Ultra Financials][][/caption]

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.

[Silver Wheaton]: [ABB Ltd.]: [Teck Cominco Ltd.]: [Ultra Financials]:

BOUGHT +1 UYG 100 NOV 08 3 CALL @.55

[caption id="attachment_850" align="aligncenter" width="500" caption="Ultra Financials"][Ultra Financials][][/caption]

[caption id="attachment_851" align="aligncenter" width="500" caption="S&P 500 intraday"][S&P 500 intraday][][/caption]

Just a cheap shot in the final 45 minutes of this option expiration Friday. S&P has shot up to 775 and retraced a little. The Advance-Decline line has turned up and the TICK is strong during this retracement. This looks like a strong setup to rally into the close. Let's see if the market can do it. Otherwise, there goes \$62.50 into the drain.

[Ultra Financials]: [S&P 500 intraday]: