Alerts & Commentary
8/25 – Commentary
Active Positions & New Trade Entries…
Today Joe sent me a note about whether or not any of our “active” trades may be at good entry points, after acknowleging that this is not a good time to be entering trades.
At first I thought, well Joe, you just answered your own question… ;-)
However, it brought up a good issue that we haven’t touched on much which is a very important part of any professional trader’s strategy in markets like these.
Whenever we have ongoing LONG TERM Long positions, that we want to continue holding, that we must continue to hedge on a monthly basis due a crappy market like this one, or, if the stock is in a funk…
At some point, unless the story or fundamentals that caused us to enter the position originally change, the stock will turn around and head in the right direction. That is why we have held several of our LT Long Positions in the face of this really crappy market.
We have continued to hedge our positions and have been very successful in reducing our risk in most of our positions through this hedging strategy to the point that many of our LT Long Positions have very little or, in a few cases, “no” risk at all.
That is one of the key reasons that we like to keep these LT positions and continue generating ST Income from them while we wait for the expected action to occur. I believe you will witness, in several of our LT holdings, that when this market eventually does turn the corner, we will be sitting on some potential monster winners over the next year or more.
Obviously, most recently we made a decision to pare back the size of most of our positions due to the fact that we were experiencing a phenomena that all of you should learn to recognize, and one which we pointed out at the time we posted our decision to take these actions…
Whenever you feel that you are having to make too many adjustments, or are feeling like you need to evaluate your positions on a daily, or regular, basis… That is a signal that you have too many positions, or that your positions are too large or complex… and it is time to take a step back, evaluate each position and reduce your management time. That may result in reducing position sizes, simplifying the positions, or in some cases, exiting some positions all together.
We decided to take all of those actions over the course of the last two months, leaving us very comfortable with our remaining positions, their structures and their size. The two exceptions are our overweight positions in RMBS and USNA, which we are now spending the majority of our time managing. As we noted last week, we may also reduce the USNA position at SEP expiration if the stock doesn’t start heading back down as we believe it should, based on the story and the condition of USNA‘s business.
Now… That doesn’t really get the heart of Joe’s question… Are there any of our active positions that may be at or near good entry points…? The short answer is YES, several of our active positions may be near good entry points, however, because of our very low risk in most of our positions now, we are less inclined to begin adding to them just yet.
But we will begin looking at them as “new” entries and post our thoughts about some that we think may be ready to rock & roll.
Thanks for raising that excellent question Joe. If any of the above isn’t resonating with anyone, please send your questions along or post a comment.
Coach BD
Please share your thoughts, concerns or questions about this posting:
