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High Return Investing with Dax

Pattern Day Trader Rules Hurt

Last week I felt the wrath of being tagged as a “Pattern Day Trader.”  Last Tuesday I had a few good trades selling some Potash for some small, but respectable gains.  I was watching Freddie Mac (FRE) and decided to buy on Wednesday.  I entered a buy order for Oct 08 $6 strike @ $250/contract.  That same contract is now trading at $500 just three trading days later!  That’s a 100% missed gain!  That’s a lot of lunch money.  My trading account was just a tad bit under the $25,000 mark which caused this missed opportunity.

So today I had available trades without being tagged as a PDT.  What did I do?  I bought 2 more contracts of Dec 08 $210 Calls @ $34.10.  If you are watching Potash you know that the union voted in favor of a strike against Potash Corp.  This is some scary news.  No miners, no product.   Well I’m not as concerned.  I’m convinced a strike will be averted.  Last November, another Potash seller - Mosaic settled with unions and their workers agreed to a new contract 8 months ago.  At that time potash was selling under $400/ton.  Today it is near $900/ton.  Something tells me Potash Corp can afford to settle with the union and move forward given the high price it is able to command for its product.  That’s my rational and that’s why I saw this as a buying opportunity.  The moment they sign a new agreement, the stock will bounce back.

Oh and that missed FRE opportunity

I revisited my Freddie Mac calls.  I put in an order for a few Oct 2008 $10 Calls @ $2.25.  I missed it by a dime.  I wish I would have got in my FRE Call trades in.   I would have had a nice intraday trade, but I wasn’t able to watch my orders today.  Later in the day it would have been up 20% had I changed my order.  I don’t always chase a stock, but sometimes I may change my order if its just a dime or two and I believe in the move.  I’m beginning to wonder if FRE is another Apple for me.  I always tend to mistime Apple.

Financials Tomorrow?

Overall I think tomorrow may offer a short-term perhaps day-trade opportunity to short the XLF.  It has had quite a run and I think the general trend is still down longer term.  The XLF has had quite a run the past week.  I see some consolidation before the next move.  Near term - tomorrow I see a downward move.  If you have some guts I’d short it for a day-trade.  That makes my Freddie Mac call position questionable doesn’t it?  Well I think I may be watching it tomorrow.  I’ll have to see what the price action looks like tomorrow.  I’m leaning towards buying a Sept $11 Call.  I still believe Freddie has plenty of support from the government and it is grossly oversold.  I expect to see the $14 level within month.  That’s the level it was trading when it fell off the map with huge volume to the downside.

Some of you may have followed my June 30 trade and advice to get back into POT. And some of you may have gone through some frustration at my advice. I purchased my Calls when POT was at the $227 level. Since June 30, POT has dipped to as low as $197.17. That’s a $30 move of 15%. Ouch!

Yes POT went from $227 down to the $197 level. Over 2 weeks it went down and is back up to $221 and was as high as $224. That’s only down $3-6. Sometimes you have to stand your ground. Yes my position is still negative, but more in line with a normal intraday loss. It is a minimal paper loss right now.

I wait for confirmation on uptrends. I also wait for confirmation on downtrends. This time I didn’t feel the strength was there to take this stock down. Considering the broader market moves, POT held up quite reasonably.

As a side note I noticed my readership drop during this 2 week period. Now it is going back up. Just like stocks, I never got the volume drop confirmation in my readership and now it is approaching normal levels. To you traders following me and sticking with me… Bravo. To you other guys… stick around. I may have a few more trades you don’t want to miss.