(1) Taking a decent size loss on my FB position today yet I have no plans to adjust it as of now. Why? I’ve been maintaining a bullish bias for quite sometime in FB as that is what the longer-term chart has called for. However, on 08-09 I saw a shorter-term bearish setup on the charts and bot some Put Vertical Debit spreads. I DH’d all but $800 of the initial cost out of the position on 08-10 leaving me with the Aug27 position below. $800 of risk with a maximum profit of $9,200.
I often get the question why I Delta Hedge (DH) positions instead of just closing them out when I have the chance to make a profit. The reason is because I’m building larger positions that often have bullish and bearish components. It’s my admission that I don’t have any idea where price is going to go at any given time! Here’s a little secret about trading; nobody else knows where price is going either! I ‘specialize’ in finding good setups that sometimes only get me a day or two of price movement in the expected direction. Fortunately that’s enough to be a profitable trader utilizing the DH strategy. Back to the FB position for a specific example. Instead of closing the bearish Aug27 position I held onto it to provide downside insurance for my longer-term bullish positions. Below is my overall risk profile showing all of my FB positions. The Aug27 position is more than offsetting the risk of the bullish positions if FB moves lower into Aug27 expiry. In fact, should FB be near 345-350 price area on Aug 27 I’ll make an additional $5-$6K over my current open profit.
(2) Update on my AMZN position. I took some profits yesterday which leaves me with this position. I have little Delta (directional) risk here and would obviously make the greatest potential profit if price remains near the 3250 strike. I’ll continue to manage this position as needed over the next 3 days.
(3) The price action in C is offering some important information today. A great deal of price action is indecipherable and of little use to me. However, when price is in the vicinity of an important price level such as a prior day’s/week’s/month’s/year’s high/low/HB OR the the upper or lower band of the 8 SMA I know how price should react to those levels. For instance, on 08-03 price dropped below last month’s HB and the rising (the slope is very important) 8 SMA lower band, reversed, and then closed back above both levels. That indicated motivated buyer’s were buying where they should have been. That’s a good bullish setup. Now look at today’s price action. Price did not find motivated buyers near the rising lower band after reversing there yesterday which it should have. That’s bearish. Price also closed below yesterday’s HB which is also bearish. It was however able to close back above last month’s high so the bulls at least have that going for them. I wouldn’t be surprised to see price attempt a rally here but I think that the buyer’s have tipped their hand and I’ll be looking to last week’s 72.55 HB as a potential resistance area to add a new short. Stay tuned…
