(This is an excerpt from an article I originally published on Seeking Alpha on February 18, 2012. Click here to read the entire piece.)
On February 10, I rushed to create a short-term bearish setup on Google (GOOG) based on the sudden surge in volatility. I concluded that if the volatility gains anticipated stock losses in the coming week, a put spread on GOOG would quickly become very valuable. I included a chart of GOOG’s historical 5-day performance as evidence that the 1.5-2.5% decline I needed was well within the realm of the possible. I bought puts in the iPath S&P 500 VIX Short-Term Futures ETN (VXX) to hedge my position. See “Surge In Volatility Makes Google Puts An Attractive Short-Term Bearish Play” for more details.
The end result of the trade was a small loss. If I had been able to respond to unfolding events at the speed of a trading robot, I would have salvaged a small profit. Here is a summary of my execution (I posted most of these trades to my twitter feed using the #120trade hashtag):
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While last week did not unfold as desired, I am optimistic that the holiday shortened week will deliver. The subtle trend downward, the stubbornness of overhead resistance, and the current profit in my latest GOOG put spread are positive signs that the market is expecting an imminent break of the $600 mark. This all leaves my original logic for this trade intact, minus a surge in volatility of course.
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Be careful out there!
(This is an excerpt from an article I originally published on Seeking Alpha on February 18, 2012. Click here to read the entire piece.)
Full disclosure: long VXX shares and puts, long GOOG put spread