Monday, October 24, 2005

Stocks flying along with my ego.

Today's trading was difficult even as my account soared into new all-time highs. My trading has been near flawless for several weeks. As my account rises each day, so does my ego. On days like this, I have to remind myself that I used to get excited when I made this much money in one day, and yet my fear of losing these profits is completely absent, while in the past I couldn't stop myself from locking in profits on days like this. I have to remind myself that most of the profits today are all paper and could evaporate on another day easily.

In an attempt to fight my ego back, I remind myself of the huge mistake I made last week when I did not hedge to Delta Neutral in ECA the day it was up almost 5 bucks on take-over rumors. The next morning I shorted shares against my calls, after it had given up half that gain even though the rumors were somewhat true. (Apparently they had been offered 65 a share earlier and turned it down.) My ego fights back though. I remember when I hedged my short calls way too soon a month back into the beginnning of the decline, and missed making twice as much money off of that short position as I did.

My Spy position and my XLE positions were up big today. I was 100% long in both. I unhedged all of my ECA on Thurseday near the close. I have scalped those calls enough so that the options are essentially free, but I could give up significant profits from a downward move in the stock or the implied volatility. ECA common was up a buck sixty or so today and yet my calls were only up 0.05. I haven't checked where IV was at prior to today. It looks pretty high today, so it must have declined off some pretty high levels for me to not have made money off such a strong move in the underlying today.

On balance I think my ego won the battle. I did lock in some of my profits in SPY by hedging 40% of my deltas. I didn't hedge any of my gains in the oil sector though. At least I didn't do any new buying today.

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