Almost Family almost at a bottom?

Well, I certainly would not have guessed this is where the positions would be when I initially entered my short put trades on PHM and AFAM a couple weeks ago. I suppose that’s the beauty of playing around the stock market. You never really know for certain what is going to happen!

My analysis could certainly have been way off (I am an amateur afterall), but Almost Family has certainly played out the complete opposite of my expectations so far. Since last week, the stock has been sharply declining, with yesterday breaking through it’s 200-day moving average.

AFAM Chart. Click to enlarge

AFAM Chart. Click to enlarge

I don’t have the 2oo-day MA on this chart, but yesterday opened belowed that mark, and only went down from there. The .KQANF $30 put option closed at its high of $1.95, more than doubling from the $.85 than I sold them for.

In theory (and should have been practice), I should have sold these once they reached the $1.70 mark on me. Alas, I wrongly did not, and was starting to sweat this a little bit. Nothing I can come up with really justifies my inaction, other than I was actually doing my day-job when the market was open. I want to say “it just didn’t make sense” or “this can’t fall forever” or some other nonsense that veteran traders would only scoff at. In any case, I didn’t act when I should have.

But, my good friend procrastination came to the rescue today. AFAM was upgraded from Neutral to Buy by Sidoti & Co., which gave AFAM a little shot in the arm. It only ended up $1.13 on the day, but for the candlestick types in the audience we have a nice harami/inverted hammer setup going on, that leads me to believe we’ll se at least a short-term uptick with the stock (See chart above).

afam-stochastic-2009-01-27

AFAM Stochcastic

The stochastic is also ridiculously low at this point. That indicates AFAM is extremely oversold, and with no news or any other obvious impetus for the slide, things appear to be inline for a swing upwards. As always, I’ll continue to keep an eye on things, but now that the stock has calmed down, the puts have also dropped in value again, so I think we can pull more time out of the trade. And since time is money, especially with OTM short puts, that means we’re making money everyday :) .

The one thing that did lead to a tangible affect on my trading account was the margin requirement on the AFAM short put trade. At the start of the trade, I had about $2100 available for withdrawal, but the big dip through yesterday end up locking up another $800 in requirements, so I was down to around $1300 available cash. That number will climb back up as the stock does. You can read more about margin requirements on the CBOE site.

Pulte Homes (PHM) continues to do its job and hold the line right around the 11.00 mark. Things actually might even start looking more up as yesterday it was announced that there was an increase in housing sales increased last month. That should buy us enough time to make good on the PHM trade, but the PHM earnings report next week will be a strong factor, as well.

I need to start researching candidates for next month, but keep an eye on these trades as well. Happy trading everyone!

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