As much as I like to pat myself on the back for good moves I make, I have to admit it when I’ve made a bad series of trades. The following is taken from the trading journal I was keeping before I started this blog. That’s why the fomat might look a little funky. The ALL CAPS notes are what I added in today. I used to keep all notes by stock. This is a perfect example of why keeping a trader’s journal is so important. Without one, it’s too easy to look back at the past with rose colored glasses.
1/16/07 – Why trade on CSCO — Schaefer’s = 7 rating, Cramer rated top 3 growth picks of 2007. I messed up my order and only put in 1 contract, meant to sell 3, added 2 more for .80. The stock price has dropped another 0.20, but the put bid/ask has not changed. I think the fear factor has been reduced a little since this morning’s quick drop ended. Now the stock is just meandering around the low $28 range which seems to be support. If it doesn’t drop more today, I might lower my limit tomorrow for more at the same strike.
Trailing P/E (ttm, intraday): 29.59
Forward P/E (fye 29-Jul-08): 18.49
Sitting on trend line from lows in mid Aug and early Nov, late December CSCO rode along just above this same line.
I put an order in on 1/11/07 to hit if it dropped. I thought .70 would be close to the high, it hit .75. I meant to put the order in for 3 contracts, but apparently just sold 1. I entered a new order for two more at .80.
CSCO fell below its 10 day moving average today and still has potential support at its 20 and 50 day lines before I’m losing money.
While CSCO was trading at 28.25, I sold 1 CYQNY (feb 27.50) @ 0.7 for 59.25 after commissions.
1/17/07 – CSCO dropped $0.30 at open this morning and the February 27.50 puts moved to .85/.90. While CSCO was trading at 27.72, my order for 2 more puts hit at $0.80 and I received $148.50 after commissions.
1/18/07 – CSCO has been a mistake from when I put the first order in. Apparently I knew subconsciously that it was going to plummet. CSCO fell 0.53 today, down to 26.45, bringing me below my adjusted cost assuming it’s assigned to me in February.
AND HERE IS WHERE THE REAL MISTAKES START…
2/7/07 – CSCO beat estimates last night and raised guidance. I sold 3 March 32.50 (CYQOT) for 3.70 when CSCO was trading at $28.80 ($.05 from the high of the day). I received $1,097.72 after commissions. Basically it’s the same as buying 300 shares and having a promise to sell at 32.50. I sold the puts rather than buying the stock so that I received money instead of paying money.
Sadly, the way I did it had NO time value in the premium (BIG MISTAKE). I love time value, but I gave up that gift to take the chance that CSCO will be climbing over the next 6 weeks.
Even more sad, CSCO is falling below its high of when I sold it and the premium is now 4.20. I started with a limit at 5.00, then 3.90. It was worth a try and I’m hanging on for the ride. That’s why I didn’t do the Feb, I need time for the dust to shake off. I don’t think it will go below 27.50, so I shouldn’t loose more than $300. If it ends Feb 16th under 27.50, I’ll have another 300 shares from my other puts.
2/8/07 – I decided to lessen my exposure to CSCO and bought back my Feb 27.50 puts for a profit and paid $87.24 to buy them back.
2/13/07 – After being out sick for a few days, I came back this morning to find that one of my March 32.50 CSCO puts was assigned and now I own 100 CSCO and still have 2 puts. I’m considering selling an April 27.50 call to get out close to break even. I’m still bullish on it, I think, but my head isn’t completely clear yet to make the decision.
2/19/07 – Options expired this weekend and CSCO closed at 27.52 on Friday. That means that I could have held on to my February puts and made more money instead of spending the $87.24 to buy them back. I don’t regret my move though. I think a big part of trading/investing is knowing yourself. I know that I would have stressed about the potential assignment of another 300 shares and spending $87.24 and taking a profit was well worth not having that stress.
2/21/07 – My other two CSCO puts were assigned to me today. Now I can consider selling covered calls on the lot of them. CSCO is sitting on a potential supporting uptrend line, so I’m going to wait a little while to see if it makes a move back up some more. I put a limit in to sell 3 covered calls at $0.20 above the current ask price for the April 27.50.
3/1/07 – I wish I had sold the CSCO calls at the ask price last week (ANOTHER BIG MISTAKE). CSCO has fallen $2 since then and now, while trading at $25.38, I sold 3 April 25 puts for 1.30, $0.20 above the ask last week for the calls that were $2.50 more. I received $377.74, that’s ~$105 in the money, but it means that in 1.8 months I’ll have ~$270 more than I have now and that’s the whole point of this. I made a bad move on CSCO from the very beginning and now I’m facing up to it. Of course, I’m hoping for it to fall to $24.99 at expiration and then shoot up after that so I can rewrite the calls again. I’ve done well in the past because of discipline and keeping emotions out of my trading, but I fell prey to emotions again with CSCO and the hopes that it would climb back to avoid giving me a loss. I should have sold the calls immediately after being assigned the stock. Cash flow is king with my trading model. Taking losses on an individual stock is nothing compared to the plan of trading my way to higher total portfolio value month after month.
4/20/07 – My CSCO mistake is over and closed out. CSCO closed at 26.99 on Friday and my 300 shares were called away for a loss of $734.12, nearly 10% down in just a few months.