Source:
OptionsLinebacker daily newsletter, September 28, 2006 edition

We live to trade another day. Every day that I can successfully defend my trades for another day is a good one. In fact, I am going to do everything that I can to keep the 1360 trade until Monday, unless we get another monster move up on Friday. Why? Well, first off, my probability limit hasn't been hit, neither has my sold strike delta threshold. Two yellow lights. The problem during this defense has been my Net Debit. Normally we're not defending a trade with 3 weeks left. This has been one wicked move up! Charts don't normally move this fast on the way up, like they do on the way down, so this has been a quick attack this month. The bottom line is that my Net Debit to close the 1360/1370 trade is higher than I'd like to see. To help that situation in case I need to close the trade, I'd like to put a couple of days of time value erosion between myself and any possible exit. In the same manner that we like to ENTER a trade before the weekend, we'd like to delay our EXIT to Monday if required. I have yet to encounter a defensive situation where a panic exit has ultimately helped my account.

Hey YOU. <are you talking to me?> Yes, YOU. I want you to work on your trading mindset. Are you concerned with your overhead Bear Call position? Why? You told your friends that you were going to run your trading like a business, right? <nods> If your business was selling merchandise, and it didn't sell, what would you do with it? Beat yourself up over the "loss"? No, you'd immediately put it on sale or clear it out in some wholesale deal. And you'd try again next month with a different style/brand of merchandise. Unemotionally. That makes sense, but traders tend to beat themselves up over what they call a "loss". It's not a loss until you bury your head in the sand and give up; closing a position just meant that a 90% chance of winning it at the beginning wasn't good enough and you'll try again after adjusting it. Stay in the game!

Yes, I still think that the risk is to the downside with an ascending pattern, so we're not going to just slap some Bull Put spreads on the bottom. It seems like years since we had a good opportunity for one! You just don't want to play them until you have some Implied Volatility to work with and get some distance. Be patient, we'll get our chance. And it will be good. The Market will stay irrational far longer than we can stay solvent, so wait for your chances, you'll get them.

Today's candlestick looks like a little hanging man at the top of an uptrend. It would be most constructive for long-term growth for the SPX to re-test its breakout level at 1326.