Wednesday, October 05, 2005

Hasty Decisions

I slept in today, and I think this negatively affected my trading today. I rarely make a point of waking up in time for the market open. Over the years I've generally found that when I trade in the morning I usually trade poorly. My solution to this has been to wait until the afternoon before placing trades. Generally, I've prefered to make my trades in the last 5 minutes of trading.

Recently though, I've been legging into a lot of trades, and have modified this plan. I've still been entering new trades in the afternoon, but when there are adjustments to an existing trade that I want to make, I've been making a point to wake up in time for the market opening. The morning is usually the most volatile time of the day, and this can provide good opportunities to get the prices I need to finish an option spread at the price I want. This has been working well for me lately. I still have a specific routine though. I wake up and then turn on CNBC so that I can see where the market is while my computer boots up. Then I load up Trader Workstation, take a glance at my positions, and then I read Realmoney.com, Niederhoffer's site, and the options report before I make any trades. This gives me the opportunity to see what is going on in the market before I make trades.

This morning I made a point to not wake up for the open. I thought that the market would probably open near it's high for the day, and continue in it's downtrend as the day progressed, so I would allow myself to sleep in and miss the temptation to adjust my bearish positions at bad prices in case the market gapped up.

The S&P and the OIH were both down a little bit when I woke up this morning.
My plan for OIH was this. OIH was well below the bearish wing of the former iron condor, I mentioned yesterday. Yesterday I had closed the short portion of the bull wing of the iron condor. This left me with long gamma to the downside. I was hoping to close out the rest of the IC with the OIH at around 115. If I didn't get that price, my plan was to wait for a few days, and then just close the position out at whatever price at that point. Right about the moment that Trader Workstation booted up the oil inventory numbers were released and the OIH immediately reversed and turned positive. I panicked and closed out all of my OIH options. This cost me 30 cents or so of profit. Almost the second I was out of all of my OIH options the OIH reversed again and plunged almost a buck as traders finished reading the report and concluded that the report was bearishinstead of bullish (do to low gasoline demand I believe). Lesson learned: "Don't trade immediately when news gets released!!". I should allready know this lesson... I could have easily gotten another buck per spread if I had been more patient, which would have put me right at my profit target.

At about the same time as the OIH fiasco SPY also ticked up slightly. I immediately finished the 117/120/123 SPY butterfly by buying the OCT 117 calls on the offer. This puts me into that flys for a little over a $1 credit. The thing is, I had decided last night to let my shorts run, and not try to complete the butterfly, since the current profit from the SHORTS was allready better than half the maximum profit from the butterfly. But I made a hasty decision. At the very least it would have made more sense to just close half my naked 120 calls at a great profit, and leave the rest to run as bear spreads, with no or almost no risk. This probably would have been the optimal decision at that point with regards to risk/reward. As I stand now, I've locked in a little less than half of my current short profits, with an opportunity to keep the rest of them, and potentially make another 33% or so, if the market doesn't move too much between now and expiration (not a likely prospect).

Basically what happened today was I woke up late at the exact same time that news was breaking which moved the market, so I skipped my usual routine that gives me perspective. This lead to emotional trading. Waking up earlier would have given me more time to prepare and be calm. Waking up later would have helped a lot too, as I would not have been trading into the morning volatility. Maybe I should make a point of sleeping in until lunch time in New York anytime I can't wake up before the market opening? If I am going to trade during the volatile morning, I need time before the market opens to be ready for it.

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