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10 Billion hedge fund liquidation forced me to review my portfolio

If you wondered what spurred such hasty sell-off yesterday, we may have an answer to it. According to Wall Street Journal a “$10.6 billion BlueCrest Capital Management LLP, one of Europe’s largest hedge-funds (and best known for its credit market expertise), laid off several stock traders in the U.S. Thursday and began liquidating their investments, according to people familiar with the matter, not long after it aggressively expanded into equities.”

So here we go. The selloff caused Nasdaq to fall by 2% and it also had a very negative impact to my portfolio.

If one hedge fund could almost destroy the market’s bull trend, then it is an evidence that the market is vulnerable, pumped, unstable, and definitely not “contained” as Janet Yellen is trying to convince us.

I made a scary discovery that my own portfolio wasn’t stable either. After I was forced to liquidate some volatile and overextended positions in my portfolio which caused me taking large losses at the beginning of September, I once again could see that I still hold risky and volatile positions on a very low cash reserves.

Michael Platt of BlueCrest, which has done worse than many competitors. BlueCrest Capital Management/Bloomberg News
Michael Platt BlueCrest Capital

As sometimes a farmer must take drastic measures in his vineyard, prone and cultivate his crops before he could reap juicy fruits, I too decided to take some further drastic and painful measures to get rid of rotten portion of my portfolio.

At the beginning of the month I liquidates too volatile position against Taser Int. (TASR) and yesterday I decided to liquidate a second risky position against Cliffs Natural Resources (CLF). Both positions had severe impact to my portfolio, but I decided to take it to be able to start fresh again.

Not only I can sleep better now, I also could raise my cash reserve closer to my target (30% or more). I can also shift to more safe instruments such as indexes (SPX, RUT, and others).

With indexes you will not be exposed to hypes, pump and dumps, or earnings.

I cut bad branches of my money tree and wrote this month off. Sometimes it happens to traders (newbies like me) that they wipe out their accounts. Fortunately, in my case, my dividend stocks saved my butt. I only wiped out my options earnings, not stocks nor dividends.

Next month, I will be starting fresh

Today’s trading was a bit better than yesterday. Bears were excited to jump on the wagon and load up. Today, they were chopped into small pieces. But the battle is not over. The next week will renew the battle for the power in the market. Will bears win, or bulls? I do not know and the next week will reveal it.

Nevertheless, I will continue trading options adding weekly money making trades into my portfolio trading weekly options against SPX plus long term options to increase income.

For example, just yesterday, I opened a new trade against Twitter (TWTR) which showed continuation in trend, unlike the rest of the stocks (along with GoPro (GPRO) which also refused to drop yesterday). I opened two different contracts expiring next week and in October. Both trades are short term weekly money making trades.

Next week I will look for opening another trade against SPX, which also is a part of my weekly strategy.

Let me post an offer to all of you interested in trading options. If you wish to follow my trades and get an alert of a trade I am about to open, you can subscribe to a free newsletter.

You will receive an alert whenever I am going to open a new trade, trade adjustments, or trade exit. I not always publish all my trades here on this blog before I place the trades with my broker. On this blog, I post the trades after they happen and sometimes I do not post them at all. I just publish them in “My Holdings” and “My Trades & Income” where you can see results of those trades.

With a newsletter, you will receive a trade alert with explanation before I place it myself. If you like the trade, you can follow it and place it too.

Happy Trading!

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