A lucky trade I should not have done

The market is very resilient and refuses to go down much. I’m certainly very impressed by the market God’s determination to float around this level. As I said, September is one of the worst months for the market in general and volatility is poised to go up with any headline risks. So personally I’ll be very cautious to trade for the long side except for some beaten down stocks with technical signs of strength. For example, I traded on the long side for Sales Force (CRM) following its disappointed earnings when it refused to go down much with bad information. It is a technical strength for it. I also did one long side trade for Broadcom (AVGO) yesterday and luckily I got a great overnight profit but honestly, I wish I hadn’t done this one due to the enormous risk involved which I didn’t realize before I got in.

AVGO has been in a downward trend since late last year and it got killed in the past 2 months due to some concerns related to the ongoing conflicts with China. However, technically it has shown some good bottoming sign and at least for the near term I was betting it should be doing well. So I made an open order a week ago to sell its Sep 07 puts for $210 when it was trading around $225, as I figured I could get in this trade if the market did sell hard this week as I was expecting. Well, I got it yesterday on Thu when the market initially sold hard and AVGO dropped towards $210ish. It immediately bounced back a bit but what got me nervous was to realize that AVGO would report earnings after closing yesterday. My oversight that I didn’t check its earnings date and since my position was not small, the risk was quite high if it tanked following the earnings. Fortunately the technical signal didn’t cheap me and AVGO responded very well following the earnings by jumping up nearly 10%. And my overnight put selling has got a full profit today.

While I’m happy for my luck today, I don’t think it is worth the risk I was taking for such a trade. Of course, I don’t mean one cannot trade earnings but you better to be better understanding what kind of risks involved and with appropriate position size and risk hedging in place to avoid uninformed downside risk. Traders could be lucky for all the previous trades made but often one or two bad trades could wipe out all the previous gains or even get killed accidently in the market. So better to be safe than sorry in this very volatile market!