Friday, July 01, 2005

No lunch for me yesterday, BAC ate it for me!

I ran out the door yesterday morning, completely forgetting about my lunch. I was short one lot of KRB (MBNA bank) when Bank of America put a bid on them. I posted a little over a week ago when I put the short on. Yea MBNA bank got acquired while I was short of it! The reason I like shorting big caps over small caps is that the likely-hood of the big-cap getting swallowed is lower, and when they do get acquired, the premium isn't enough to take you out of the game. I covered the KRB short-position too soon yesterday though. I could have saved myself about 3% by waiting a day after the bid was put on by BAC, but I didn't want to risk sticking around for a higher bid from somebody like Citi group. I'll have to make about 33% on a one lot trade to make up for the KRB loss. I'm not in a hurry though, its better to let the market come to you.

The reason I forgot my lunch though, I was overcome by a pressing need to identify any warning signs that could have saved me from the loss. Sure enough, it was right there in the yahoo finance headlines, and on the chart. When I put the trade on, I was on the phone with Jarod. He looked at the chart and asked me, "what happened on that positive reversal day?" Without bothering to check, I replied, "beats me." Well yesterday morning I looked. That day the BAC ceo was talking about making a credit-card company acquisition -- reason enough for me to have covered. That'll teach me not to overzealous and careless with the hedging!

I'm not worried by this loss however. Having losing trades is part of the cost of doing business, and I took a couple of good lessons from it besides. If you trade small enough not to break your year on any one trade, you can afford to stay in school, like me =)


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