BABA was one of the trades I try not to make, but talk myself into every few years. It sounded hot and promising, but was overvalued. It might have a fantastic future, but it still has too much unknown about it for now. After it was accused of selling counterfeit goods through its network of sites, the stock suffered as other worries surfaced.
I held on after the initial report sell-off to see if it could turn itself around. We saw a little bounce and then it dropped off a cliff, falling more than $13 in two days. I thought it would bounce from the low and it did, but only a dead cat bounce before resuming its slide.
BABA could very well rebound tomorrow and start its march towards new highs, but I sold my 100 shares for $84.56 this afternoon and received $8,454.84 after paying $1.16 in commission. BABA won’t be the last stock I latch onto in the hopes of better than average returns, but it’ll be another reminder of why I try to avoid such high P/E stocks, especially before they have a real track record to learn from.
Not counting the small realized gain from an earlier successful naked put, today’s trade will close out this series of trades with a sizeable loss. I bought 100 shares of BABA at $110 and reduced that cost by the $4.605 I brought in from the December $110 put I sold. Including the premium, my total cost was $10,539.50. Since I didn’t sell covered calls, my exiting total of $8,454.84 was my complete exit price. I ended with a realized loss of $2,084.66.
I took a chance twice with BABA and got away with it the first time, but not the second time. Rather than risk further losses, I decided it was better to focus my attention elsewhere. I’m not sure what else I’ll target next, but it won’t be as risky as BABA. I’m not saying that whatever I trade on next won’t be able to fall 25% over a couple of months, but it will not have the same risks as a newly IPO’d stock from another country.
It might have stung less if TLT hadn’t reversed so much already this week. It was more than $2.50 lower at the end of last week, but I’ve stayed short. I view TLT very differently than BABA. TLT is a known entity and moves based on reasonable (and often expected) triggers. I made the decision to try for some extra earnings on my short position and it has cost me so far. I could’ve gotten out this morning with a healthy gain, but stuck with it and TLT lurched higher while (and after) Fed Chair Yellen spoke. I’ll exit and take my small profit if TLT pushes past $130.00 tomorrow, assuming I can get out before it gets too high. If it falls, I have a limit order in place to buy the shares back at $127.70, well above where I think it should be in a few months. Sometimes, it’s just better to manage risks earlier and start over.