Reasonably Thinking

With the recent drop in the market over the past month, I decided to take profits on my SSO puts (a trade that bet on the market falling).  This trade also makes sense since the options expire next month–I would have been forced to act in June had I held onto the position.

As you can see below, I was behind on this trade through all of March and April.  Yet, I still managed a nice gain here.  The opposite side of the trade was ahead for two months and ended up with a loss.  Given the choice of the two, I’ll happily trail behind for a bit if I believe the trade will work in my favor.  (The graph is of SSO, the security that the put option is derived from; the arrow is my entry point on 2/2/10, when SSO traded at about $37).

(image from Google Finance)

Even after exiting this downward position, I still maintain a substantial market short position.  Further, if the market was to rally from here, I would consider recylcing this trade.

Keeping score: