Paying to PLAY! Why I pay for PUTS!

Continuing on the conversation from yesterday’s post — The key is to ensure that you can set-up your risk in order to stay in your trade (long enough to validate your conviction)… That being said, if you are a retail trader (and most of us are), being long, long anything — You were tested today.

What a great rally in the ES, this morning, we traded as high as 1992 on the Spoos… at that point, I had to take some of the “long stockmarket” trade off of the table– so I did. — Then a few hours later, the trader that I am — had to get long again as we were below 1970 — now we are lower, and I’m back in it. That being said– I am in it, the trade is still on, its live, its unrealized, I had my earlier trade, now I have a new basically long delta position in ES.

While the ES continues to be a “falling knife” on a day like today for example, I fortunately have been able to protect my “shots at being long stocks” by paying up an owning protection. Basically I am paying to play — sure I can lose the premium, and it can take away from my profits, but I pay for the PUTS because it keeps me in the game. Being long ES for example, you could easily “blowout” even on small size, when we have 50pt intraday swings (on the regular). So for me — I can either pay to play, and pay up for the PUTS, or I won’t be playing at all. Trying to scalp the ES with a tight stop right now is not going to be my approach, I am swing trading between a usually bullish stance on the stock market. (Which has been the greatest creation of wealth as I look around at the oldest bulls I know)… These days, with technology and now all these new forms of leverage, – things move faster than ever – I think its better to be safe than sorry, and define your risk before EVERY trade.

Lastly, I don’t often talk about individual stocks, but I am eying the big elephants in the room in AAPL and TWTR. (Especially while I try and corner the ES)… When I look at these two very different and unique companies (in addition to similar blue chip names) I see a lot more upside than downside, — it may not be clean/pretty — but if those stocks have more upside, I would think the Spoos (ES) has the potential for higher trading again. The other spot I am looking at to get an idea “IF” the ES can rally back is commodities (Gold GC and OIL CL) — Everyone keeps talking about the global focus, especially Asia’s influence, if this is the case, I will be looking at the commodities for the next “buy signal”, until then I will be paying to play – waiting for the rally and staying in the game. You will always be thankful for having protection — without it, I don’t see it as “realistic” to live to trade another day. Ha… how else do you expect to catch a possible turnaround in (Gold GC and Oil CL)…

*Either you could have made more, or you’ll be thankful that it saved you, it’s a good problem to have. Just need to get past the “paying to play” concept.

In this case, in some of these particular set-ups I mentioned, I am thankful that it saved me, and ideally giving me the opportunity to, maybe if I’m lucky — I’ll be complaining I could have made more soon!

Let’s try again tomorrow. – Happy Trading.

-Bret Rosenthal