Daily Update – July 7, 2008

Calendar July 7, 2008 | Posted by Jorge

Hope everyone had a great 4th of July.  While I enjoyed the break, I was itching to get back into the market.  The morning action wasn’t a surprise and neither was the dip in my account.  I’m about 50% cash right now so I’m feeling fairly comfortable.  I’m still heavily negative delta which is a concern.  I can’t for the life of me hold on to any calls without getting stopped out.  I may end up hedging against a bounce with some index calls but I need to figure out how to implement that into my trading plan.  A contingency plan of sorts I suppose.

Contracts traded:  9 (ILMN loss, V roll, STT roll)

Profit / Loss : $933

*** New Account High ***

I’m now looking at a 30% profit from my initial investment last year + the loan I gave my account earlier this year.  The longer this keeps up,the more I’m thinking maybe things are falling into place.  We shall see I suppose!

Category Categories: Portfolio Progress | Tag Tags: , , | Comments Comments

  • Nice day, and congrats on the success so far - keep it up!
  • Not looking for a free lesson, but just out of curiosity, could you explain what 'heavily negative delta' and 'hedging against a bounce with some index calls' means. I was reading some of your back posts, and I figure if I hang around here long enuf I could learn something useful.
  • Ling,

    Any and all questions I can and try to answer are always free :)

    Let's start off with delta. Delta is roughly the amount you'll make/lose with a contract for every $1 the underlying stock moves. Example:

    Let's say my XL contract has a delta of -0.50 (negative .50). For every $1 XL moves down (in the same direction as delta), I gain $50. If XL moves up $1, I lose $50.

    Delta negative means you're net short the market while delta positive means you're net positive. Over the past couple of weeks, I've been shorting everything I can in the market, so my portfolio has more negative deltas than positive deltas.

    Now, what happens if the market rallies like it did yesterday? Well if you're short everything and the market moves higher, you're going to be hurt :) Some traders "hedge" or buy insurance on their positions.

    Example: I'm currently delta negative by 1000, i.e. my portfolio has -1000 deltas. If I feel I need insurance, or a hedge, I can purchase something that follows the entire market, like the SPY or DIA. Let's say I purchase 500 positive deltas worth of the SPY or DIA. Now, my portfolio is net negative 500 deltas. If the market goes up, sure, I'll hurt. But I won't hurt as bad as if I didn't have insurance.

    Hedging is a way that can help soften your losses should the need arise. Today I hedge myself a bit just in case we bounce tomorrow.
  • It means we still can make money in market going down?
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