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Just to wrap up the day, I thought I'd share three stocks that are doing interesting things after-hours.
First is Verisign, in which I have a small short position. It looks like it's going to finally close its gap up nice 'n' tidy, and I'll probably add to my short at these higher levels (it's up about 2.8% after hours).
Next is one of my larger shorts, Agilent, which is going to gap down very nicely. I might go ahead and cover this one to take my profits.
Last, and most interesting, is HerbaLife (in which I have no position at all, but which I've enjoyed profits from by way of shorts in the past). Carl "Hello??" Icahn ruined Bill Ackman's evening by announcing a huge stake in the company, and the stock is zooming higher. It's going to be tantalizing mashed up against that diamond pattern, so I might just hop in with Team Ackman again.
Good night, everyone; see you Friday, before the long President's Day weekend.
Traders have one of the most difficult jobs in the
world. On top of having to figure out
market direction we also have to fight emotion, calculate risk, determine trade
size, pick entries and exits, and battle to stay true to our trading
plans. And then, after we master all of
these facets of the game, we then invariably will have a few days of "I
was right about direction, how come I lost money?"
This weekend I was perplexed as to why I had a few long side
losses last week despite the trend in the S&P being very clearly
bullish. So I started to ask myself
why? What did I do differently? And the answer hit me like a freight
train. Last week I was trying to jump
the market early for a BREAKOUT to much greater highs, where as before I was
sitting back and JBTFD; just buying the freaking dip. Why is this important? Simply, the market can trend in two very
different ways. I call them the Grind
and the Explosion. The difference is
enormous and directly relates to trading strategy. Let's explore.
Leveraged ETFs can add some excitement to a
portfolio: bet right on underlying index, and you can earn double or
triple the returns of that index. The downside of leveraged ETFs,
though, is their potential downside. Consider one of the most
widely-traded leveraged ETFs, the Direxion Daily Gold Miners Bull 3X
Shares (NUGT): we're just about six weeks into 2013, and unhedged NUGT
longs who bought the ETF at the beginning of the year are already down
more than 29%, as of Tuesday's close (unhedged longs, that is, who didn't use stops. A quick search of Social Trade shows that the last Sloper who wrote about buying NUGT prudently used a stop order).
Too Expensive To Hedge Against A >20% Drop With Optimal Puts
we noted in a recent post, hedging a security against a
drop can offer a reasonable compromise between limiting downside risk
and lowering the cost of hedging. Unsurprisingly for such a volatile ETF
(as of Tuesday, the 52-week high
and low prices on NUGT were $26.69 and $7.62, respectively), its
puts are expensive. On Tuesday, NUGT was too expensive to hedge against
a greater-than-20% drop using optimal puts*. That's because the cost of
hedging it against a greater-than-20% drop over the next several months
was itself greater than 20% of position value.