Cutting Losses

Yesterday I mentioned that I didn’t think we’d get a bounce today.  However, I didn’t expect such a massive sell off.  If I dreamed it was going to be like this I would’ve made today’s trades a lot earlier.

I started with selling lower covered calls on Aflac (AFL).  I thought about just dumping the shares, but have to think they’ll be OK long term, unless they have more of a tie-in to European debt than I thought.  Anyway, I didn’t sell my shares yet, but did cut my losses with new covered calls much closer to the money than my others that are still in place, but worthless at the November 50 strike.  While AFL was trading at $31.65 I sold two AFL November $36 covered calls for $0.95 and received $188.55 after commissions.  I probably could’ve gone much lower on the strike and still not had my shares called away, but I wanted to leave some more upside potential.

After AFL, I moved to GLD where I still had a profit (what a strange feeling these days).  Gold seems to be rolling over some lately.  While I’m still a longer term bull on the yellow metal, I think it might dip further before it starts to rally again, so I took my profit and am moving on.  While GLD was trading at 169.71 I sold my 35 shares and received $5,939.62 after commissions.  I made a profit of $131.77.  Woo Hoo!

I really hesitated on this next trade and it cost me.  Around lunch time I decided to cut my losses on my S&P 500 exposure, but wanted to see if we’d get a bounce that could save me a few bucks.  I still dreamed another leg higher would emerge.  When it didn’t show I started planning this trade.  By the time the $SPX really started selling off to reach new lows I didn’t see a better plan than just buying the opposite ETF, SDS.  SDS attempts to produce twice the inverse returns of the S&P 500.  I didn’t even use an option so I could get in quickly and can get out when I want with easy liquidity.  While SDS was trading at $26.18 I bought 300 shares and paid $7,855.49 with commissions.  I don’t know how long I plan to keep this trade open.  It only covers half of my SSO exposure which means it doesn’t do me a ton of good, but at least slows the bleeding.  That’s what today was about, easing the pain. In the end, I might have caught the bottom.  Hopefully I did.  I still have enough other exposure that the losses I take on SDS won’t be too bad.  If the $SPX keeps dropping I’ll add to my SDS position.

I really made the same mistake I did before the debt ceiling debate ended.  At that time I ignored the charts and thought once it was resolved the markets would recover.  I did the same thing this time, but thought the Fed’s kind words would soothe the markets.  The opposite happened and look where we are now.