I had been bearish on the markets and caught short, as many were, in the rally that began in earnest the Monday after Thanksgiving week in late 2011.
After all, the Eurozone had seemed destined for a melt-down, Greece was visibly cracking and the US markets had been in a funk of their own after the Debt Downgrade waterfall ride that summer. Looking at the chart, I had imagined that the end was nigh for the entire bear market rally off the 2009 lows.
But in a stick save move, both European and U.S markets were soon jolted out of their stupor with another robust bout of can-kicking, and boy did markets love can-kicking back then! So off we went and an absolute ripper to the upside was born.
All of this information is irrelevant except to tell you that I had blown out most of my speculative funds by September of 2012 by betting foolishly on tops that never arrived via SPY puts and other such Weapons of Mass Financial Destruction.
You see, back in 2011 I had opened up a day-trading account all on my own, separate from my accounts with Cuz the Broker (see this post if you are not caught up with that arrangement) and had blown through it until I was under the $25k limit and of course I ended up getting locked out of making more trades for like 3 months due to a horrible trap for little fish like me called the Pattern Day-trading rules.
It was an awful time, and by the end of that ordeal and after the massive rally I described above, I had gutted my bankroll pretty good and was less a speculator than a spectator and gun shy to make any more parlor bets.
I was still holding a few core positions (aka corpses) including a horrible short position in Chipotle that I had been wrestling with for a while. It was cramping both my style and my buying strength badly going into Q1 earnings, but then the fever broke on the burrito and things calmed down a bit for me and gave me some breathing room.
I had been doing a whole lot of stalking and not much trading as I mentioned, since I was pretty broke but one of the names that had intrigued me was Google. I had the eagle eye on her that summer, that’s for sure.
That stock had been a real mover for a while both long and short. What I had initially noticed with GOOG is that once it cleared above $600 in July it REALLY started punishing those few shorts still bearish enough to be left in the name after its recent declines. I had been there and done that with CMG and knew the signs. What I saw in the price action convinced me that Google had made lows and was going to go much higher than $600 and so I sat on my hands and waited for her to flash me a sign that it was time to fade the move.
Day after day it was a relentless march higher. Little by little, slowly squeezing and I could not honestly tell you why I did not just go long of Google as that trade seemed a dead lock cinch, and it was, for what seemed like ages. But it just kind of hypnotized me and I sat and watched and waited for my chance to pounce on the short trade.
Weeks and months went by and that stock teased and taunted the bears, often feigning weakness one day just to gap above on the next and start the squeeze all over again to new high after new high. Many times and many days I was tempted to initiate a short position but I told myself that I could not afford to guess, I had to have a good reason to short, I needed an edge and unless I had one I had to be willing and prepared to miss the trade. Basically I had one shot to be right, and I was going to err on the side of caution. Plus by all accounts the prospects for the company seemed sound, and a rule of speculating states that if there is no catalyst there is no trade.
Every time that I mentally noted a potential shorting area, the next day I would invariably be glad I did not take the bait. GOOG was rending the bears with vicious gashes daily and I wanted no part in that.
Eight, nine, then ten then eleven weeks in a row Google finished at higher prices. The weekly chart seemed like the very Stairway to Heaven itself with its erect ascent. By this time I was positively foaming at the mouth but it was almost a Zen discipline at that point for me to wait out the momentum. With a patience and quiet focus and calm attitude I just observed and watched for the change in character.
After waiting monk-like for the news flow to change and the catalyst to emerge I noticed something on a Saturday morning that piqued my interest. Insiders had been selling in large amounts and they had cut their holdings by over 45% going into earnings in only a few weeks. While that is something worthwhile to note it is far from a smoking gun.
The next week I was watching GOOG even more closely and I noticed it start stalling out over 770 and I made a mental note about this. I was scanning the news feeds and read an article detailing a negative impact on current earnings due to some one-time charges. Another noted potential catalyst.
Finally, the cherry on top for me was on the first Friday in October I read an online Investor’s Business Daily article that came out near the end of the trading session. The article about Google had a simple premise. It was bringing attention to the fact that Google was about to break it’s all time consecutive weekly gain streak .The article went on to mention that the record weekly win streak had previously been back when Google made its previous all-time high price per share back in November 2007.
Now here I am staring at this simple article and I got a feeling in my gut. Investor’s Business Daily usually did not peddle in such mediocre “news” and I took this as a contrary sign that sentiment was at or near peak levels for the stock. This combined with the other little clues gave me my edge.
Just then I look at the chart. GOOG made all-time highs near $775 and then all of a sudden as I am watching, it reverses off its record highs to trade under $770. I checked the clock and I had 30 minutes left in the session and the week and something told me that this was THE DAY.
Quickly I scanned the daily chart for clues on the right trade to take. No way could I short the common since I had no margin left due to my CMG position. I had to take an option trade but since earnings were coming up in a few weeks they were expensive.
I had to not only be right on the trade, but I had to pick the right way to express my bearish view using overpriced options due to upcoming earnings. That is not a recipe for success.
But I looked at the chart and my eyes saw it instantly. My eyes saw the pattern all at once and in an instant I just knew in my heart that Google was going to head down to at least $700, over $70 below where it was trading at that moment.
Now I had an end point but what trade to take? The 740×700 October put spread was pricing out at a grand and change and it gave me two weeks for the trade to hit. Suckers bet.
I called my Cuz (remember I had blown out my trading account) and told him what I wanted to do and told him to get the trade on no matter what. I hung up the phone and watched Google trade the last 5 minutes of the session.
Like a sign from the heavens, the overall markets rolled over at that moment and Google dropped at least five bucks in the last five minutes and closed the day at $767 and change.
Monday came and the market opened to a big gap down, and Google opened up down six dollars per share right off the bat at $761. I never took even one penny of heat on the trade. Over the next week or so Google chopped up the late to the party shorts. My spread fluctuated in profit, but my entry was too good to touch and by the day before earnings Google closed at $755. This encouraged me but by no means was anything certain.
The day of earnings I was a bit nervous. Not only was this the day of reckoning for my crazy option gambit to either make me money or turn to mush, but my other major deal Chipotle just happened to be reporting the same day at the same time.
I had a ton of nervous energy that morning and I needed to blow off some steam. It would drive mef crazy if I watched price all day so I went for a jog during the lunchtime doldrums.
During my jog I felt a little sense of peace wash over me. After all, I had been calculating, patient, observant and purposeful in stalking the trade. Some clues had emerged that I was on the right track and the trade had gone my way immediately. So as I returned back to the house I had buzz in my head, but I was anticipating something good was about to happen.
Once inside, I quickly checked the screen to see how Google was trading. It was down from the price I had left it at, another positive sign. After a few minutes of watching, something happened that made me audibly yell. In an instant GOOG dropped like a stone on HUGE volume, $750 then $730 then $710 then $695 then $685!!!! What the FUCK? What just HAPPENED? Earnings were not for over an hour still to come, and all of a sudden the stock had dropped over $80 in mere seconds.
What had happened was that somebody had released GOOG’s earnings report before the bell. It was a fat finger “mistake”. I have found in life that there are few, if any coincidences, but in any event here I was sitting on a huge gain on my spread.
I immediately called my cousin and had him buy me a weekly 740 call for a hundy or so as a hedge, in case this was a huge mistake and we got a reversal. By doing this, I had locked in some type of gain and it bought me time for price to possibly keep falling, and to let the option pricing settle down so I could get the best exit possible.
Soon after that, the market closed and CMG reported a down quarter. The stock immediately tanked hard. Five minutes and $50 down later and I was looking at Aces over Kings. Slowly I walked over to the liquor cabinet and poured myself a whisky on the rocks and settled down into my chair to await the CMG conference call. I remember the feeling well. How the planets had aligned perfectly and the sun had shined on me for that one day. How the Google trade had needed to be perfect and it was just that. The perfect trade. As I savored my drink in silence I had a thought and pulled up a song by Ice Cube on YouTube and blasted it.
After all, I thought to myself that today was one for the ages. Today was a good day. I didn’t even have to use my A.K.