Slope of Hope Blog Posts

Slope initially began as a blog, so this is where most of the website’s content resides. Here we have tens of thousands of posts dating back over a decade. These are listed in reverse chronological order. Click on any category icon below to see posts tagged with that particular subject, or click on a word in the category cloud on the right side of the screen for more specific choices.

So What Does LinkedIn Mean?

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All right, all right. I'll say a few words on LNKD's insane public debut today. This is off the top of my head, and I feel guilty even piling on about this company on which I wish there'd be a moratorium placed with respect to news articles….

In no particular order:

(1) This is bound to heat up interest in the likes of SecondMarket, since – against all probabilities – those who got into the stock before today made out like bandits.

(2) The chatter out there is that every social networking firm would like to go public Approximately By Tomorrow since the appetite for this is clearly so rampant. After all, why wait nearly a year (ahem – Facebook?) when you have no idea what the next year will bring?

(3) If I were Reid Hoffman (and I'm not – – since I'm about one hundred pounds lighter and $1.9 billion dollars poorer) I would have wished for, say, a 5% gentle rise in price today. Unless this stock pushes merrily higher and higher and remains in the triple digits, it won't be long before he has a lot of pissed-off public owners. Let's keep in mind this thing was priced at $45 last night. What if it returned to $45 in three months? That's going to make for a lot of very underwater holders.

(4) I can already tell that people have a serious case of 1999 on the brain all over again, and I'm aghast at how many prominent commentators are saying – without a hint of irony – that It's Different This Time.

(5) Something in the back of my head is telling me the bear market can't seriously get rocking and rolling again until Social Networking Mania is over and done with. Sadly, that won't be the case until Facebook comes public, and present talk is that such an event is nearly a year away. Grumble. Well, we'll just have to take things one day at a time, yes?


A Missed Opportunity (by Dave Pinsen)

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In a post here last week (Revisiting a Losing Market-Neutral Trade), I mentioned a market neutral trade where I got stopped out of the short side for a loss. I got stopped out of the short side of a more recent market neutral trade (Short TRGL, Long IMO) for a gain, but I missed an opportunity in not buying puts on TRGL after getting stopped out.

TRGL versus IMO

The chart below shows the performance of TRGL and IMO from when I entered the trade on 3/31/2011 until when I exited on 4/21/2011. I started out with 24% trailing stops on both sides of this trade, but as I noted on Short Screen at the time, I tightened those trailing stops on both sides (to 8%) on 4/19. So I got stopped out of TRGL early on 4/21 — at $7.58, instead of $8.85, which is where it closed that day. Once I got stopped out of TRGL, I sold my long position in IMO. Overall, it wasn't a bad trade: I made 3% on the long side and 30% on the short side, for a combined return of 16.5% on the combined trade.


Why TRGL popped on 4/21

The company, an oil & gas E&P with its operations in the Paris Basin, had been under a cloud as the French government considered banning shale exploration for environmental reasons. On 4/21, the company commented on an interim report about shale exploration by a French government agency, but there was nothing conclusive about that report; the pop on 4/21 looks like it was a simply a short squeeze.

Performance of TRGL from 4/21 until this week

The chart below shows how TRGL shares have done since I got stopped out on 4/21.


Why this was a missed opportunity

Because the bearish case against TRGL hadn't materially changed on 4/21, so I should have taken advantage of the bounce and bought in-the-money puts on it then. I didn't think of that at the time.

Buying puts on a stock after getting stopped out of a short position

The odd thing is that I did do that when I got stopped out of the short side of another market neutral trade (Short JOE, Long GTY) for a loss earlier this year. Since I thought the bearish case against JOE remained intact, I bought long-dated, in-the-money puts on it (which I'm still holding). It's something I'll consider going forward when I get stopped out for gains as well.

A reminder about hedging versus betting

Those puts on JOE were a speculative bet against  the stock; because of that, I bought in the money puts on it, consistent with Tim's guidelines about buying options in Chart Your Way to Profits. That makes sense for directional bets (when you are willing to pay more to reduce the odds against your bet) but would be sub-optimal in most cases for hedging (when you want to get a certain level of protection at the lowest possible cost).

If I were hedging, I would enter the symbol of the stock or ETF I was looking to hedge in the “symbol” field of Portfolio Armor (available as a web app and as an Apple iOS app), enter the number of shares in the “shares owned” field, and then enter the maximum decline I was willing to risk in the “threshold” field. Then Portfolio Armor would use its algorithm to scan for the optimal puts to give me that level of protection at the lowest cost.

On rare occasions (I’ve seen it happen once, so far) the optimal puts Portfolio Armor presents might be in-the-money; in most cases however they will be out-of-the-money.

My most recent market neutral trade

I entered another market neutral trade last Friday, long ALB, short ADES. More details on that at the link.

SPY Update (by Leaf_West)

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Before I start I would like to warn people that EWT is discussed in this post … I'm sure that it will bring out the haters but I would like to point out that the MOB/Elliott Wave driven target  of $135.00 – $135.25 was shown on Monday of this week and this morning's high hit right into the middle of the targeted optimal time zone to the minute (targeted time zone is the two vertical black lines in the MOB target).  So having said that bring on the ridicule …