#16 MARCH 2, 2012 SHALLOW SLOPE UPTREND CHANNEL AS SIGN OF WEAK MARKET ACTION

 

I had large call position in DBA leaps. I was already concerned because of extended period with no follow-through after weak bounce following long slide. The extended, narrow, shallow uptrend shown in chart seemed like weak action vulnerable to downside breakout. I was almost tempted to go short so covered entire deep in-the-money long leap call position, even though I had to liquidate with zero time value for options given B/A spread.

How it Turned Out

The market traded lower for the next three months and was able to replace same position in one year later leaps (2014) about $3 lower. Scaled into about three-quarters of equivalent liquidated position before market turned sharply higher.

Lesson—Liquidating position on very weak price action even though it meant selling options that had 10 months to run at near zero time value was right thing to do. Good example of doing what was right and not letting other factors (e.g., unattractive liquidation price) interfere with taking the action my gut told me should be taken.