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Trading versus Investing

Thursday, June 08, 2006 | 03:14 PM

in Investing | Technical Analysis | Trading

A few readers asked about the earlier trade I mentioned, and what it means to my longer term views, now that most major indices are negative YTD.

The short answer is not a whole lot. I still think we see even more weakness into the second half. But we hit levels and saw enough downside action that a bounce makes sense. Hence, the trading repositioning.

The longer answer is a bit more nuanced: The SPY Puts were sold strictly as a function of discipline. They had grown percentage-wise beyond where I wanted in terms of downside exposure, given where the market is and how quickly we got here. I still have a decent SPY Put position, mostly Septembers; Same for the VIX Calls (August).

Buying the Qs was only a "toe in the water" type-modest trade. Since its now almost in the money by a half point, I'll move my stop loss to breakeven. I'll average up if we rally, and hold the position until it starts misbehaving.

Now I have some upside exposure if we bounce, and enough room that the trade should be no worse than a breakeven (unless we gap down hard).

Tonite will be ~~lonely~~ I'll be able to finsih a sentence without Cody on Kudlow & Co. I'm sure today's action will generate some interesting conversation.