Stock Traders Blog

I covered my 2000 shares of shorted Bank of America yesterday at $13.30 only to realize it dropped half a dollar more today. Half a dollar a share is translated into $1,000 lost. That means if I still keep the 2000 shares shorted BAC I would recoup almost all my lost. As I mentioned in my previous post my average price on the shorted position was $12.50. If you read my previous post I almost increased 2000 shares of shorted position on BAC when it was at $13.20. If I did that the average price would be at $12.75 and I would able to recoup all my lost today. The only thing is that I have to hold the shorted position for four days. If I increased my shorted position the day before yesterday on BAC at $13.70 which was the closing price that day (I had thought about that). My average would be $13.10 and I could make a very nice profit today.

I know there are too many IFs. Every time when I looked back at my lost I became a very sophisticated programmer making a lot of complex IF statements. I think this run up on BAC and the last one I experienced on Wells Fargo tell us something in common. If a stock runs up too fast and out paces its peers by 15% percent or more not because of fundamental changes and not because of the sentiment of the whole sector then it is doom to retreat. Of course to someone who shorted at $13.70 the day before yesterday there was a lot of luck for them because no one can predict the NY Empire Manufacturing Index drop so much yesterday.

So much so for retrospection. I made some profit today and became a holder of Bank America again at a much higher price. As you know I bought it at $12.06 last week only to sold it too fast. I bought 1000 shares of Bank of America closing to end of the market at $12.76. I made a lot of trades today. I brought MGM in pre-market and sold it for a small profit. I sold my Western Refining position for a small profit. I bought BAC at $12.99 and sold it at $13.10 before I bought it again at closing. At the end My account was up $309.78. The value of put position I am holding drop a bit. Excluding that the trades I did today net more than $400 profit. I expect I will eventually collect all the proceed from selling the puts. If I don’t trade for the rest of the week my account should still be up $400 by the end of the week and I should get back above my initial capital level which is $30,000.

Hopefully the data is good tomorrow and I can make some profit on BAC. BAC’s trading range this week will determine the common share price Bank of America uses to convert its prefer shares. I believe there will be great opportunity to make profit. I believe it is very likely that BAC’s price will trade above the conversion price right after it is announced (June 23rd) and before the final conversion deadline which is June 24th.So I will watch out and keep an estimate of the conversion price. I believe the investment banks will Jag up BAC price large enough to attract prefer share holder to tender their shares for conversion after the conversion price announcement.

Lets see if this is correct

Account Balance Change: $309.78

It is the third day I hold the short position of Bank of America. I never hold a shorted position that long. The last record I held a short position was on Wells Fargo. I held it over the weekend for two trading days. I don’t feel comfortable holding short position for long as I know very well the potential lose being on the short side is unlimited.

I threw towel and took lose on Bank of America covering 2000 shares of short position at $13.30 and losing about $1600 on that trade. Frankly I was thinking about to go long on BAC today. Because I feel it still has momentum. Its price didn’t go down as much as many other finanical stocks today even after a big running up. Basically I dare not to be on the short side unless I find the price is extremely outrageous. It is the third big lose I got by being on the short side and I really don’t want that happen again. I was looking at a few stocks to long on. BAC, USB, WNR, and ATP. I am still holding a sold put position on USB and so I don’t want to long on it again. I want to see how the options work out on expiration day which is this weekend. If it works as expected then my account should go up $300.

WNR and ATP’s current price are all below their recent secondary offering prices and WNR even got an upgrade today. But WNR didn’t react positively so I decided to buy 1000 shares of WNR in hope that it will react to the upgrad tomorrow. If the market goes netural tomorrow I bet WNR will be back above $8.50. From the graph looks like the $8 is its support. Hopefully that will work out.

My account balance is currently below $30,000 which is my revised initial capital

Account Balance Change: +$700.12

I really start feeling panicking about my 2000 shares of short position on Bank of America. It is for sure a lost deal. When I took the short position I thought big bank’s movement should be somewhat in tandem. Some may behave wild but will not be too far out of line. I felt safe to short BAC when I looked at how USB behaved the day before. However Bank of America seem to negate what I believe. The major big banks stock price almost stayed at where they were a couple days ago but Bank of America shot up 10% yesterday and then 5% today.

Will it Move up another 5% next Monday? Probably if there is another upgrade on Monday which I think would not be impossible. Because major staking holder are seeming working with the investment bank and the media to pump BAC’s price up. If there are no upgrades and if the market is neutral then I believe it will full back 5% after investor have a weekend to think about BAC’s recent price movement. New investor may not be willing to get in at this level and some major holder may take this opportunity to take profit and buy others banks that has a clearer picture than BAC. If I am holding Bank of America I would’ve sold it and buy USB already. If the market tank for reasons like Bond jittering then BAC’s price can be down more. Of course there is possibility of the whole bank sector going up another step. That is something I really don’t want to see on Monday.

Monday will be my third day of holding this short position. I just hope I don’t have to lose that much on this deal.

Bank of America keep getting upgrades from analyst and its stock price keep going up. My lost keep increasing. I really don’t know what it is going to be like next Monday. Yesterday I regretted that didn’t short more at $13.20. Today I felt I was lucky that I didn’t do that. When Goldman Sachs and Morgan Stanley upgraded Bank of America their target price was too far out of line and nobody really believe into it. But it doesn’t matter what BOFA’s fair value is if the same view is repeated multiple times by different people then we find it is easy to believe into.

In other words this really tells us no body really understand how much Bank of America worth and no body really understand its book. We just know that the majority of the people looking at Bank of America and believe its price will go up and up. My lost increase about $1,300 more and my account balance is way below its initial value of $30,000. I believe a big pull back will happen sometime next week I just don’t know at at what price the pull back will happen. I feel the chance it going back to $12.50 is pretty small now.

Again it is the fault of taking short position in the first place.

Account Balance Change: -$1310.00

It was a wild ride today with Bank of America. This was the day I felt would definitely come and this was the day I was expecting for when I bought into Bank of America. Unfortunately I missed it and I missed it too hard. If you were following me you know that I brought 1000 shares of Bank of America yesterday at $12.06. I mentioned that I felt the upside momentum of this stock. But I sold it too early this morning at $12.23. After I sold it I quickly jumped into a short position at $12.43 and later increased my short position at $12.58. For the rest of the day I was carrying 2000 shares of shorted BAC and watching my account balance going down when BAC price was skyrocketing

Thoughts About Taking Suggestion:
All kind of wild thoughts came into my mind with the wild ride of Bank of America. I thought I shouldn’t have got up so early. If I gave myself more time to sleep I could end up making a profit and at the same time I could have a better sleep. Too bad I followed Rpena’s suggestion. =) However when I sold my shares too early I thought it was too bad that I didn’t follow Rpena’s suggestion. If I took the suggestion I wouldn’t take the short side today and ended up with a lost.

There were three reasons that I chose to sell for a small profit. First, BAC didn’t react well to the upgrade in pre-market. Its price just went up a little in pre-market and I thought that was it. Second Repena reminded me there was a 30 year Treasury bill auction today and I thought it was not going to be good. Again it was Rpena’s fault. =) Thirdly I felt I should follow my guidelines. Of course I know I shouldn’t blame anyone for the action I decided to take. I felt I wasn’t a mature trader and Rpena is far more experience than me.

Thoughts About Recouping Lost:
My wild thought went on and I found today’s Bank of America was very much like Wells Fargo on the day when I lost $10,000 trading it. That was the day after the government announced the stress test results and Well Fargo announced its secondary offering to raise capital at $22 a share. I increased my short position two times on Wells Fargo on that day causing me a big lost. Today I dare not to increase my short position on BAC for the third time. In fact when Bank of America’s price jump to $13.19 I was about to click the button to insert an order to short 2000 more shares but I didn’t when I thought about the Wells Fargo trade. Later on I regretted I didn’t do it when I saw BAC closed under $13.

My thoughts went on about selling 100 contracts of BAC June 12 Put at 0.22 to recoup my lost today. That was only 100*100*0.22=$2,200 involved. But what if BAC price drop under $12 next week say to $11.50? I could lose more than $5,000. So I sold 20 contracts instead. That helped a little bit.

Thoughts About Lesson Learned:
Now I am pondering whether there are some lessons I learn today? I really don’t know. Because I found the lessons I learned are seemingly more and more contradicted with each other. I thought one lesson I learned out of today could be that I acted too early in the trading session. I should’ve waited to act till the latest market hour. But this was not always valid though. I was thinking about this post, “I Have Got to Treasure Selling Opportunity”, in which I could make money if I acted early.

Another lesson learned could be I got up too early and I should just take it easy and have a good sleep. I am not sure if that was a good lesson. The third lesson I thought about is not to panic and close a lost postion in a hurry and wait at least three trading days before you throw towel. I actually wanted to write about this for a while but not sure if that was a good one. From my past lost experience if I were able to hold the losing position long enough say three days I could at least see an opportunity to close it without lost. I found that was right for my previous two big losts.

1. Trading Out of Discipline and not Knowing How to Stop Caused Big Lost and
2. Wells Fargo Is Over Valued at $25.70

I am not sure if this is going to be right this time. Anyway we will see if BAC can get down to $12.50 in a couple days which was my average.

Another lesson which should be positively right. Life is much better on the long side. This is the third time I lost big on taking a short position and I want o highlight this. I should be very very careful about the entry point when taking a short position

I lost about $400 for the day and am holding USB and BAC puts and 2000 share of shorted BAC at the moment. The lost on shorting BAC is more than $10,00 but off set by the gain on the USB and BAC puts and gain on previous long position on BAC

Account Balance Change: -$405.85

My Account was up about three hundred dollars. I sold VRSN at $19.37 at market open. I sold it too early. It ever went up to above $19.80. But as I mentioned in my previous post Verisign was down because of a pricing fixing law suite and I believe the law suite has a lot of merits. If it went down more I wouldn’t feel surprise. I am glad I make money on that deal.

I made some profit on trading Bank of America mostly by shorting it above $12.30 and covering it in $12.20 level. I feel Bank of America wanted to go up for another step however its peers (USB, WFC, JPM) didn’t want to. And that eventually drag Bank of America down. In fact Bank of America was ahead of its peers most of the day. At the end I was holding 1000 shares of Bank of America at $12.06. Bank of America was down really fast in the late session. When I set up the order to buy BAC at $12.06 I was thinking BAC was very strong during the day and if it went down to 12.06 it could quickly went back up. But it didn’t went backup and stayed closer to its peers.

I feel the upward expectation on Bank of America is still high and mostly it will open higher to $12.10 or above in pre-market tomorrow. If economic data released tomorrow is not too far out of line I think the bank sector should rebound a little. If all data beat expectation I feel Bank of America can jump ahead of other banks again. The gain shown on my account today included gains on the USB puts I did not close yet. I mean to hold it pass the expiration date which is next weekend and pocket the total proceed of $450. Excluding the gain on puts my profit was about $240.

Account Balance Change: +$343.09

Today the government announced some of the big banks that were allowed to repay Trap. I thought the banks would take that as an event to push their price up another step. But it turned out nothing happen. On the day when the government released the stress test results the market was like a wild horse. Today I feel it was like a turtle. Sometimes the market just behaves very calm and logical. It didn’t make sense the way that the market reacted to stress test results then but it made sense to me the way the market reacted to the government’s announcement today. After all we pretty much know which banks are able to repay TRAP.

I wanted to short Bank of America this morning but I wasn’t sure if today was going to be another wild day. I did not dare to do that. Thinking back I should have looked at the volume. If the volume is light then it is not going to be a big day. I wanted to take a long position but I didn’t feel BAC worth that much. After all it was not one of the banks that were able to repay TRAP. It should be categorized as a weaker bank.

In searching or a tradable stock I found Verisign. It was involved in a price fixing law suite and its stock price dropped 20% in a couple days. It seems to me that $19 per share is its support line so I got in at $19.07. I am losing money right now.

Frankly I think the law suite has a lot of merits. Verisign owns network solution Inc which monopoly the domain name registration business. I didn’t understand why the market which was installed with anti-monopoly laws could allow a company like network solution Inc operated as monopoly in the first place. If you have an explanation of any kind I would love to hear it. I had the thought back in the DOT COM era that network solution Inc was a monopoly and would be suited. Basically everyone has to purchase domain name from them. I didn’t expect to wait till that long to see a law suite. That is one of the reasons I want to take a shot a VRSN. After all it down 20% and loss $1 Billion market capitalization already

Account Balance Change: -$79.49

Dr Doom Roubini speaks out today. The following are some of the minutes of his speech.

1. Those aren’t “green shoots”–they’re yellow weeds
2. The crisis isn’t over, and everyone has become way too complacent
3. We’ll be in recession for another 6-9 months
4. The recovery after that will be weak
5. Big risk of a double-dip
6. Households aren’t deleveraging
7. Oil could go to $200 just as economy starts to recover
8. Real interest rates could spike, killing housing, etc.
9. Concern about hyper-inflation
10. All this could lead to “perfect storm” that will clip wings of economic and financial recovery
11. So we need to stay focused on averting disaster before we redesign regulatory architecture.

So Roubini or Buffet who is going to be right? Buffet was very optimistic. He called for the stock market bottom last quarter when the Dow was at around 8000 and it later dropped to 6500. Roubini called for the financial melt down more than a year ealier and he was right. Buffet was onto banks and he was right too. For most part their views may not be contradicted with each other. For example their views on the risk of inflation. But their views on housing seem to be different. Buffet was optimistic on housing market going forward. Roubini’s view was kind of depressed. Who do you believe.

I am more on Roubini’s side on housing because I just don’t think housing price will go back to 2006 without a major raise in wage. Banks will not provide those exotic mortgages again. Housing price went crazy during 2005 and 2006 majorly because of those exotic mortgages. No money down, stated income, 110% finance and reverse mortgage. Those things are not easily coming back.

As for inflation some economist think it won’t come until consumer borrowing increase. But consumer borrowing is still decreasing so inflation will probably come eventually but not that early. However inflation expectation will built into commodity price before the economy recover. Roubini predict “Oil could go to $200 just as economy starts to recover” that is about 6 to 9 months later. So it is probably a good move to load up the oil share like CEO or PTR now.

Banks in a short time will run up because some of them will repay TRAP and no matter what it will be seen a positive sign for the sector. Anyway I just want to jog down some of the ideas I want to keep in mind going forward.

I make some profit today and I feel comfortable with it. I said I didn’t want to trade option but I trade again. I sold USB put again. Next weekend will be the expiration day let’s see if I can pocket the $450 bucks. I said I want to be on the long side of banks but I took the short side when BAC was above $12. I trade a couple times and make profit. Another thinking I change is that I don’t want trading cost get into my mind and affect my decision whether to close a position or not. As long as I can make money net of commission I don’t want to care about how much it is.

Account Balance Change: +$196.98

Lose Money on First Trade After Fresh Start:
I try to be more conservative with a fresh start of a clean cash position of $30,000. I started with a trade shorting 750 shares of BAC yesterday in after market at $11.88. I decided not to follow the market actively and I got up at 8:00 AM PST this morning. Obviously I was kind of late. If I was up early and watching I might increase my short position when BAC went up above $12. So my first trade after my fresh start was at lost. I covered it at $11.96 and lost about $76 including commission. Fortunately I was following my trading guidelines and didn’t lose much.

Live a Low Beta Life:
That is it if I follow the guidelines I will lose less when the market goes against me but I will also earn less when the market is going with me. It is like I choose to live a life that has a low beta. The ups and downs will be small. I feel comfortable with a “low beta life” though. But you may not found it as exciting reading my blog. I will still make the decision to increase bet depending on market condition otherwise I will not be fully making use of the capital I have.

View on the Market:
I think the sentiment on financial shares is still bullish especially on Bank of America because of the analyst upgrade yesterday. Investors now have in mind the idea that bank shares could be double or triple in the next several years affected by some of the analyst’s opinion. Their upgrade is trying to reinforce the price target of Gold Sachs and Morgan Stanley. It was a laughable target then but investors are giving it a second thought.

Investors are trying to convince themselves that BAC is worth more than $12.00. The only thing dragging it was the other financial shares which was affected by the concern on unemployment rate. I feel Bank of America on its own would’ve shrugged off any bad news till $13.00. But frankly I believe the analyst was speaking for their firm’s large holding of bank shares. They would not wait till it double to exchange it with you for cash.

Anyway I was wrong on shorting BAC yesterday. At least I should’ve set up a short order at price above $12 yesterday so that even I don’t want to watch the market I can still make money. I think the DOW should try 8,900 next week so I will try to be on the long side. But I don’t want to long BAC. I want to long USB when it is below $18.00. I feel USB has very good support when it is under $18.

Again t is a losing day for me

Account Balance Change: -$76.74

Wonder what is short squeeze? I just had one and made the most laughable mistake in my entire trading life. Yesterday I shorted 2000 shares of (CCO) Clear Channel Outdoor Holdings at $5.62 after it jump 56%. $5.62 was close to yesterday’s height but I covered it this morning close to today’s height at $5.87. What a stupid decision. Now CCO is trading at $5.09. A typical short squeeze.

Bank of the Ozarks another issue I bought yesterday is going against me droped another 2.5% after dropping 6% yesterday. But I feel much easier to hold on to a long position so I am going to keep it there. Still think it is a bank that is much healthier than its bigger peers. Let me know if you have different thoughts

Big loss again today dropping $1,150 at the momment. My account balance is falling off the cliff

At market close

Account Balance Change: -$689.99