I sold all of my PSEC shares at 5.09 today due to the recent market’s reaction to new information regarding the state of the economy and the Corona-virus. Although my minimum target of $5 was reached in a really short period of time – roughly 2 months from late April where I purchased it – I originally planned to sell it in the $6 to $6.5 for a mean reversion.
Either way, the position sizing was pretty small, so although I’m up over 30% (I bought in at 3.81), the capital gains aren’t substantial. With this sale, I’m just over 90% cash, with my only position being MRO.
I’m still looking to re-enter Boeing in the 90-140 range for a medium to longer term swing trade or investment. This time I’m thinking of implementing “The wheel” options trading strategy, where I sell cash secured puts, and when filled, sell covered calls until my shares are called away. In some sense, this is no longer a swing trade nor an investment, but a play on theta (time decay) for options.
I’m looking to do either a regular short on Facebook, or a covered short trade which reduces my risk and reward. I would normally like to short the indexes like SPY or QQQ instead, but my broker won’t let me short them right now. I also don’t like messing around with inverse ETFs, since they aren’t meant to be held for more than a couple days with all the volatility drag shenanigans.
The plan is to short FB at or near 240, with a hard stop loss 15 dollars above my entry (1% risk), and a minimum profit exit at 200. This gives us a risk reward of about 2.5:1 which is decent. I plan to exit my trade early if it quickly goes against me and the overall market moves higher. I also have a timed stop of 1 month since I don’t want to hold the short through the earnings report.
If I do the covered short strategy, I plan to sell the monthly 220 put for a 5 dollar premium, which gives me some protection if the stock moves up, but also caps my gains if the stock falls below 220.
I’ll post charts of FB this weekend if I take this trade.
Bigfry's Blog 
I am very impressed with your timing. Curious, how are you able to be time it perfectly? Don’t say you are getting lucky 🙂
You had good timing with this and BA exit too.
LikeLiked by 1 person
Thank you for the kind note 🙂 . I think half or more of it is luck, but the other half consists of looking at the overall market trend (S&P500), risk reward ratios, and sentiment indicators.
Since I believed the S&P500 would start a pullback due to technical analysis, it means that most stocks in the stock market are going to go down as well.
Regarding risk reward ratios, I focus on price ranges within the last few months if the stock is volatile to few years to figure out what is “expensive” and what is “cheap.” If a stock is trading towards the top 1/3 of the range I’ve determined, I consider it to be on the more expensive side, and as a result has less upside than downside (more risk, less reward). If this is the case, I look to sell at the next opportunity. Of course, this also applies for the opposite scenario – if a stock is trading in the bottom 1/3 of the trading range I’ve determined, I’ll go ahead and start selling puts and look to get filled.
Lastly, I’l take a look at sentiment indicators. If I “feel” or see people getting excessively greedy on a stock (like Boeing’s run from the low 100s to 230 recently, I become more inclined to sell and look for a re-entry. This is like Warren Buffett’s saying, “buy when others are fearful, and sell when others are greedy.” By trading off these trading ranges, I’m buying low (bottom of range) and selling high (top of range).
For that Boeing trade specifically, I had a plan when I bought in March to sell at 240 or higher so I wanted to stick to that plan (although I did sell slightly earlier at 230). I got extremely lucky to sell Boeing right at the top since it just happened to reach a price I was comfortable selling at.
I hope that answers your question, and I would be happy to clarify or give more examples if anything was unclear. Enjoy your weekend!
LikeLike
Thank you for the detailed answer. Would you mind sharing what is the criteria for this “top 1/3 of the range I’ve determined” ?
LikeLiked by 1 person
No problem. To determine the range and where to go long/short, you have to first figure out the time period you want to hold the trade for. If the trade is held for weeks, you want to look for a smaller range to trade. As a current example for Boeing, the bottom of the range is at the previous low of 90, with the top of the range at 230. This is fairly wide and I suspect it would take at least a year to go from the bottom of the range to the top. I use 1/3 of the entire range from 90-230 to determine the levels where I can start averaging in. Roughly speaking, the bottom 1/3 of the 90-230 range is from 90-140, and the top 1/3 is from 180-230. I hope I answered your question, and please don’t hesitate to ask any more questions if my explanation was unclear.
LikeLike
I feel like I just simply repeated myself from the previous post. If what I said didn’t answer your question, could you ask your question in a slightly different way? Thanks.
LikeLike
Yes, you did answer. Appreciate your prompt responses.
LikeLiked by 1 person