Thursday, December 07, 2006

The BIDU saga continues

Yesterday I bought some BIDU calls @7.3. Here is how it turned out:
The chart on the top is a chart of BIDU Jan07 120 Puts. The chart on the bottom is BIDU itself. Both charts are 1d/15min timeframe. The biggest peculiar behaviour that I noticed on the chart of the puts today was this: that the options over-exaggerate the move of underlying. The opening downward thrust to 121.6 in BIDU underlying stock caused a spike up of the puts to 9.0. However, when BIDU tested the 121.6-ish level later in the afternoon, the puts were not at same level as the morning's high.

When BIDU started drifting back up at around 1230pm EST, it wasn't clear what the direction would be. I had the right idea with buying the puts - the initial position that I bought was was rather small, and more intended to "test the waters." Unfortunately, I got too agressive too soon. Had I waited longer before making the second purchase of the puts (like at 12:45p EST), I would not have capitulated and instead, would likely still be holding onto them now. This is yet another variation of how my lack of patience affects my trading. The mistake I made was magnified by the large position size that I eventually took on.

So in summary, my lesson of the day: buying a half position in a stock is a good idea, but WAIT for confirmation before buying the second half of your position.

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