Trade Alert: Stopped Out of Juniper

Yesterday afternoon, our limit orders to preserve capital in Juniper Networks were triggered, handing us a loss of 36%.

That means we’re officially out of this position. So if your orders weren’t hit for any reason, go ahead and sell your Juniper calls since we’ll no longer be following the trade.

While any loss is hard to stomach, I’m happy we were able to limit this one to 36%.

As you may recall, our position was down nearly 75% in early November. To protect some capital in the event that the trade continued heading south, we put in our standard 75% stop-loss order. I chose to stick to that strategy because Juniper’s historical charts showed that in certain instances, it is better to wait it out. And we did — which helped us reduce our loss to a less painful 36%.

Part of testing out a system isn’t only figuring out how to grab winners, but also how to manage losses. Since every trading system will have them, it’s prudent for us to figure out a strategy that works for us, and we’re off to a good start in both areas.

For one, we have had an excellent earnings quarter thus far, securing gains of 300% in United Rentals in just eight days, a 100% gain in Netflix in eight days, a 70% gain in Garmin in nine days, a 73% gain in F5 Networks in just three days, and the list goes on. And only three losses so far.

Of course, I want to hear your feedback, for the winners and the losses, so please let me know what you thought of this trade and how we managed this loss. As always, you can reach me at earningsdrift@sovereignsociety.com.

Inside the Mailbag

On a related note, I want to address a question I asked last week about our stop-loss strategy.

In last Tuesday’s mailbag, I asked:

Would you rather lock in a 50% gain on half the position, as we do now, and then use trailing stops on the other half to follow the price higher, assuming it goes higher?

Or would you rather I set a 25% trailing stop when the options are up 50% and continue to let the entire position ride, knowing that we could get stopped out of the entire position at a 25% gain?

I’ve been watching your feedback come into the inbox, and it seems most folks like the current system of locking in a 50% gain, and then placing the 10% stop on the second half. So we will stay with that approach. If, however, you like the idea of setting a 25% trailing stop after a position reaches 50%, then here’s what I suggest for you to do on your own:

  1. Do not set an initial Good ‘Til Canceled stop-loss order to take profits at 50%.
  2. When I send out a dispatch announcing that we’ve locked in a 50% gain on the first half of the position and to set a stop at 10% on the other half, you should, instead, set a trailing stop at 25% for the entire position.
  3. Continue to follow all stop-loss order recommendations when a position is underwater.

As a heads-up, we’re winding our way into our slow period. It was pretty busy there for a while, but now earnings season is slowing down. There are four companies on our list for December, and then we’re headed for a quiet period until things start heating up at the end of January. In the lulls, though, I’ll continue to keep you updated on our positions, on what’s coming down the pike and answer any questions you may have.

Until next time, good trading…

Jeff Opdyke
Editor, Earnings Drift Alert