I feel like I have a sense of what I should be doing in this market. Back in April, I put a note on my calendar to move to cash in September. Perhaps not a bad idea. I moved to about 30%-35% cash during the downturn today. Perhaps that was foolish. Perhaps it wasn’t enough. Only time will tell.
I also took the opportunity to place a few trades on vehicles that will move with the downturn. I looked to the Diamonds (essentially a trade on the DJIA) and to AIG. View my trading log to see the few moves that I made.
I placed 1 option trade on AIG that turned a profit of 5.57% in about an hour. The problem is that I left another 8-10% on the table. The stock reacted the way I expected and I only have a small gain to show for it.
I can’t believe how wrong I have been on AIG over the past few weeks. I have been calling for them to “go away”. As I often say, we are never wrong, we are just early or late. I am not alone in the feeling that AIG is simply a trading vehicle at this point. (Investors Trading 3 Stocks that May be Doomed). This is nearly an ideal vehicle. There is more than 80% of the company tied up in hands that will not act (remember the taxpayers own more than 80%). This could be manipulation. I don’t see AIG as a long term play. As a short term trading vehicle it is great. One analyst has this to say about AIG.
“their price is almost certain to go to zero”.
The other trades made between yesterday and today were in options on the Diamonds (DIA). I bought puts (a bet that the shares will move lower). In all cases I left much more on the table than I took off. I have become tight after a few plays of mine headed the complete opposite of my expectations. I did pull a few percent on each play, but holding a bit longer would have yielded gains of more than 8x my profit (approx 80% gains). I am not talking about holding for the rest of the day, I am talking about simply sticking with the momentum (10 more minutes). On 2 occasions, I was headed out of the office and was forced to place a conservative limit, but on the others, a more disciplined approach could have yielded much more.
Today was a very poor day for the market. I don’t feel comfortable that I raised some cash today and the small profits in my trades simply kept my spirits up.
FAIR WARNING!: This market could get ugly. Down, down, down. Vacation time is over and there is big money ready to move this market. I don’t think that we will be able to digest bad news the way we have been able to for the past few weeks. In fact, the market shrugged off some good news today. Not a great sign for the bulls. Stay tuned.