Paul, while I often buy calls on my shorts, I did not do so in the case of NOVL. My upside cover is determined by TA indicators and news. As long as we are talking about that NOVL short - if truth be told, I botched it, because I didn't follow my own rules. Ordinarily, when a stock I am shorting gets within "short" range, I monitor the TA indicators very carefully to see just when I should short. For NOVL, my indicators were showing that the odds were high, that if NOVL broke 40, it would run at least for one more day (the enthusiasm over the "breakout" over 40, was bound to carry it higher for at least a bit more). However, I was so anxious to short - I was afraid that a negative market the following day might prompt people to take profits on the recent break over 40, instead of carrying the momentum a bit further. Therefore, I was unwilling to take that chance, and I shorted it just above 41, only to watch the stock keep going up the following day, hitting 44+ and closing at 43. I felt pretty stupid - but that's what you get for breaking the rules, lack of patience and jumping the gun... rules based on probability should be followed precisely because the MORE probable will happen more often than the less probable. I broke the rules, and paid for it. The danger was, that shorting too early I could have been exposed to the temptation of unnecessary covering to escape upside momentum - fortunately, I was very sure of the unsustainability of the move for NOVL. What kept me in the short despite my miss, is that based on TA I figured the momentum should not last much longer. I had a contingency plan of adding to my short at $46 5/16, but it never got to that. Needless to say, I was very relieved to see the stock lose 10 points the following day on huge volume. It was easy street from then on. I was blindsided just like everybody else by the news and the big drop that day to under 11 - even though the stock was acting very badly for several days prior to that - I was still SHOCKED by the size of that drop. I covered way too early at just a smidgen above 11 - but I didn't want to press my luck. My analysis was that any further downside potential was limited and much outweighed by the danger of a bottom feeding relief rally. In retrospect obviously I covered too early, but I figured that even if I was wrong the possible further gains were not worth such a use of capital, and I could use it much more productively elswhere. Now, if NOVL sinks to $7 or lower, obviously, I will have blundered very badly<ggg>, but I really don't expect that.
Morgan |
