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Tuesday, January 30, 2007

Strangled By MHP; Strangled GWW

I closed my entire position on MHP strangle. As you can tell from the title, yes, I was strangled by this stock.

Day 1 after earnings, coupled with weak overall markets, it headed south $3, but not sufficient to breakeven. My breakeven points were: 64.3/70.1.

Day 2, it gapped up, back to where it was before earnings, which I really dreaded, and then only to head south again.

Day 3, it was hovering around 50MA, unable to decided which direction to go. Decided to close the position for $0.7 loss/strangle because:

-stock flip flopping around
-50 MA acts as some sort of support/resistance and it may well stay there for awhile
-FOMC upcoming may also mean sideways market, and could have the same impact on this stock as well
-The trigger event, i.e earnings, was over by 3 trading days already and looking back, stock would have made the move, if there's any.

Unfortunately, this stock just did not move as much as it did in the past, but loss was within my calculated worst case scenario ($0.8). Just one of those losing trades...

Another strangle which I entered was GWW, which initially also gave me some heartache, lol.

Bought the Feb 75 Call and 70 Put for total of $1.5. Breakeven points: 69.1/75.3. Worst case: $0.9 loss. If I were to rate it, its actually a better setup for strangle than MHP because it is nearer to the midpoint of the 2 strikes and it also has a greater minimum jump historically. But because of MHP performance and also because such trades are not my bread and butter type, I only bought 1 contact.

Day 1 after earnings, it was up nicely, but gave back most of its gains later. Not a pleasant sight, but heck, its still within my loss threshold and I will give it another day or two to prove itself

Day 2: Gapped up (yes!!!), not sure why until I checked briefing.com as I was busy earlier with switching over to use the laptop due to PC down. Analyst upgrade. Volume strong too, better than last Fri. I was wary when it came close to $76, being:

-That is about the 6 mth high mark
-1.62 Fib extension of the opening high to previous day's low
-Also the R2 of pivot point.

I watched it closely and indeed it was hovering around there for quite sometime. As I have only 1 contract and faced with conflux of resistance, I sold closed my call at 4th bar for $0.35 or 23% profit. I left my put alone as it was only worth $0.1 and if it does come back down, I have a chance of closing it for more profits. The stock continued to hang around $76 and only pushed up during lunch time to hit 2.0 Fib extension. I left about $0.5 profits on the table, but given the circumstances, I think I did the right thing. If I had more contracts, I would have taken partial profit at $76 and leave the rest to run.


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