Thursday, April 17, 2014

Weekly: relief rally, best week of the year

A huge relief rally off the Tuesday lows translates into the most profitable week of the year for my trading account. I make three trades, May positions for AMGN Amgen and VRX Valeant and yet another blot on the record, closing out a big loss in UNH United Healthcare on their poor earnings report. My profits for the year have inched ahead of the commissions paid. Here are the three trades:

Thu Sell VRX May 95 puts @120.9. Sell AMGN May 100 puts @115.6. I open May positions on Valeant Pharma and Amgen. Implied volatility on both are high because earnings will come out before May expiration. Again, I choose the 90%+ probability of profit puts to sell. Valeant and Amgen are two of my best trading stocks for 2014.

Buy to cover UNH May 72.5 puts @73.9. United Healthcare gaps lower on earnings and breaks minor support at 75. I get out in the morning for a big loss, about 300% basis the option premium collected. There was a downgrade yesterday. Thankfully I didn't follow my notion to add to my long position on yesterday's downgrade. Intra-day timing is poor as I cover a few ticks from the low of the morning, By the close, UNH moves up over the 75 support level. Grrr.

Fast markets are not my friend and one reason why I trade the way I do. I trade cautiously, with the odds in my favor, often risking big losses for small gains, with a high percentage of winners. Once in a while, things go wrong. When that happens I tend to take my lumps and live to trade another day instead of risking account crippling losses. It is risky enough selling naked options, even more so to do it with a "let it ride" or "go down with the ship" trading plan when the chips are down. 

Every position trader has hot and cold streaks. A trader that lets losers go exponential is likely to eventually have a cold streak bad enough to destroy the account. A bad cold streak can mean game over, no more trading for you. Rarely does a person hear "game over" stories on the Internet, especially among the hindsight traders and paper traders that enjoy bragging about their wins but never seem to report a single loss in public. Many are doing coin flip probability kind of trades (50/50 up or down) so it is almost certain that over the long term the win percentage is no better than 60% even for the best of the bunch. (60% is considered exceptionally good over the long term for pro sports handicappers).
I'll post a monthly report for the April expiration cycle a bit later. For that observe the holiday, have a meaningful and joyful Good Friday, Easter and/or Passover.

Position summary:
short GILD
expired: BA WDC SLB

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