Saturday, April 5, 2014

So close yet so far

I am sorry for harping on the same trade again, but there are two reasons I publish this post.

1. To claw back some self respect for the losing trade that I made on FEYE a month back
2. To explain why the adage "Market can stay irrational longer than you can stay liquid" is a lesson in humility and something that should never be forgotten.

Yesterday, FEYE hit 50$. This is a good 10$ below my target price for the short trade I had proposed a couple of months back. And true to the calculation, FEYE is heading back to a valuation that is closer to 10 times revenue like its peers. If you compare that with the chart for PANW, PANW has been able to hold on to the levels that it was at when I wrote the first post about this since it was already hovering around 10 times revenue. Needless to say that the slump in the market is slowly becoming a reality with all the momentum stocks taking it to their chin in the last couple of weeks. So in summary I take solace in the fact that the thesis on my trade was intact.

Now for the second lesson and the more important lesson. I played an aggressive hand on this trade. Though my thesis said that the slump would be here by summer, my trade tried to get ahead of that thesis and got into a time horizon that was way more aggressive than my own thesis. Instead of buying the march puts, if I had stuck to the thesis of May time horizon, I would now be in the money on that trade by 20$ that translates to 2000$ per option.

On that note. I shall close the chapter on this trade. Lesson learnt!

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