Revisiting my “short squeeze” trade (INSY)

The vertical line shows my exit, early in the day before it dropped for three days straight.
The vertical line shows my exit on Dec 19th 2014, early in the day. It continued to drop for three days straight.

About a month ago I was in a pickle: my swing trade of INSYS Therapeutics Inc (INSY) had met its profit target quite significantly. You can read about it here the night before, and here on the day I closed the position. Rather than just closing the trade at the open of December 19th as my rules dictated, I hesitated. The reason I hesitated is that INSY was the potential beneficiary of a “short squeeze” (see that first post for an explanation of what a short squeeze is).

In the end, I put in a tight stop-loss which was triggered almost immediately. So the end result – a gain of 15% – was not significantly different than if I’d just sold at the opening bell.

But look at that chart! Over the three days starting when I sold it, the stock dropped over 14%. Ouch! Can you imagine what I would have done if I’d decided to let it ride? Since I would have moved outside my ‘system’, I would have panicked at that first big drop and no doubt given up much of my gain during that big drop. Oh sure, I could have just waited it out and made even more money later. But I know myself well enough that that wouldn’t have happened.

My discipline has gotten better since then. 🙂 In fact I currently have a double-short oil ETF that I bought with the intention of a medium-term trade of a few months. Right now it keeps hovering above my trailing stop, and my wife keeps saying “sell! sell! You’ve made so much money!” But I’m sticking to the rules I established when I started that trade. Oil might go back up, but just as easily, oil prices could fall to $40/barrel before they’re done. I’d feel silly giving up the extra profit. But even more so, I’d feel silly having broken my own rules.

A part of me wishes it would finally drop below the stop, so a) I can write about it on this blog, b) oil will quite mucking with the overall market and c) I can move on to the next trade.

Stick to your rules. If you have an overwhelming, concrete reason to break your own rules, then do so. But if you just are getting itchy or second-guessing the market, then ignore those feelings. And stick to your rules.

 

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