Feb 12 - Google Trade

Following the close of the Google short position, I'm thinking that now is a good time to slowly get into a long position. Again I am not talking about buying the stock outright as it may prove to be volatile in the short-term. I want to use the volatility to my advantage.

With the recent volatility and downside threat in the market, people will look to take insurance against their long positions by buying puts. This has caused some increase in the value of the puts in some stocks that had been over-bought. Let's look at a daily plot of GOOG:


Google has already had its pullback and I don't see it going down in a large move. The downtrend is broken with as Google stays within a trading range. MACD is trending up with the faster line crossing the slower to the upside. RSI is indicating an over-sold position in the short-term. Volume indicates that aggresive selling has slowed.

I have a position in mind and today I entered into 1/3 of the total position I would like to acumulate, which is short 450 PUTs for JUN 2010 for the premium of $9/share. In the coming days I will look to add to it.

Given the volatility of the market and the posibility of a downturn in the broad markets, I have decided to buy some insurance for this position with buying 450 PUTS for MAR 2010 for $1.30/share. The value of these long puts will increase faster than the value of the JUN puts if the stock should go down from there.

September 24 - LULU Post Trade Analysis

Well that was a fast trade!!!! LULU trade reached its planned goal of about $1 downside within 3 days. This is following the Trade Watch setup on September 14, which put LULU on my radar for a possible short position. In the September 22 post, I mentioned that the trade had been taken at $24.40 with a stop-loss at $25.22.

Today the trade was fully closed out today at $23.05 leading to a $1.35 profit / share.


The move down was also aided by the fact that the markets have been over-bought for days and needed to pull back. The S&P500 closed at 1050 today, down 1% from yesterday and down about 2% since the short position on LULU was initiated.

Although the trade closed at $23.05, LULU continued the decline to end the day at $22.57. It is possible that the stock will trade lower tomorrow as today's action was weak and bearish. However, the trade was executed within the planned range. There should be no regrets even if it moves lower tomorrow.

September 22 - LULU Trade

Following my trade watch for Lululemon (LULU), my short-sell trade was taken today at $24.40/share.


I've put a stop-loss order at $25.22 to fully exit the position. My expectation for a downside is a minimum of $1/share profit, however, depending on market strength I will look to revise this target. If the market continues to go strong, even though I believe it's over-bought, I will try to take earlier profits. If the market shows some weakness, I will hold on for more downside profits.

September 14 - Lululemon (LULU) Trade Watch

Before starting this post, I should mention that Lululemon is traded both on the TSX and NASDAQ, under the tickers LLL and LULU respectively. Although in this post I chart and analyze LULU, it can be extended to the ticker traded on TSX.

With the recent earnings news released on September 10th, the stock has had a great run up. However, I'm starting to see a pattern I'm very familiar with - the unsustainable sharp run-up. The result of these patterns is an eventual pull back and I will look to put in a trade to capture the downside. Let's look at a daily one-year chart of LULU:


This pattern has repeated twice in the past couple of months, and possibly setting up for a third time! The pullbacks are very shallow followed by strong up movements, which means if I want to play contrarian, I will have to be in and out fast. As an addition to the volume, the 20 day Average True Range (ATR) has been plotted at the bottom. So at a $1 ATR, I can expect this stock to swing about an average of $1 a day. This way I can get a feel for how far to put stop-losses.

Lets look closer for signs of near-term strength or weakness. Below is today's chart in 5 minute intervals:


Today, LULU climbed with the markets but met with resistance in the afternoon as a triple top formed at around $24. This is bearish in the short-term and I expected a slide from there, however, it finished strong at the day's high. I will look to tomorrow's trading day for a short position entry... especially if we gap up, see market weakness, and come back below resistance levels.

September 11 - Update on GOOG and AAPL trades

Since the initiation of both short positions, the stocks experienced a pull back and continued towards their previous high. However, the Call options that were sold on August 27th have lost more value and indicate a profit.

GOOG DEC 590 calls currently trade at $1.35/share and the AAPL OCT 200 calls trade at $0.40/share. They have both essentially halved in value since as the both stocks have lost quite a bit of steam to the upside.

I am on trade and do not want to keep these positions around earnings as volatility could introduce large moves. Depending on what happens between now and late October when they report, I will look to close out these positions. Right now I have them on close watch.

August 27 - GOOG and AAPL Short Position

Following my plan yesterday, I've sold Google and Apple calls to take advantage of an over-bought situation.

Google:
I sold GOOG DEC 2009 calls at a strike of 590 and a premium of $2.50/share. The trade plan is to close out this position at or under $0.50/share at a profit, or close the position at $5/share at a loss if the trade goes against me. I would rather not hold this until expiry as it is over 4 months away.

Apple:
I sold AAPL OCT 2009 calls at a strike of 200 and a premium of $0.40/share. I will place a bracket order to either close the position at $0.05/share or stop-loss at $0.80/share. AAPL has been rising very fast and its almost at its all-time high of $200. Technically speaking I don't think that we should be approaching the all-time high level so early out of the recession. AAPL still depends on consumer spending and with unemployment rates in the US pushing 10% this upshoot maybe premature. So I chose to sell the calls at the strike of 200.

It is very important to place stop-losses for both trades as we are still in an up-market, making this a contrarian trade against the market. Furthermore, I will look to buy these back before their earnings releases as the stock can become very volatile.