Wednesday, October 21, 2009

10/21/09 ISRG short set up

A couple guys in the room traded ISRG to the short side today. Here is what we saw and why it was a good trade regardless of if it paid or not.

  • It is a stock that can move a high dollar amount

  • Around our entry short at 8:45-9:00am cst we had a move up in the overall market but ISRG was still extremely weak (divergence)

  • Shorting names on their lows had not paid me, I was ready to short this on a bounce. My morning game plan, sitting on my desk, has this specifically written out. Shorting lows has not paid for most of 2009.

  • Even though ISRG bounced $6-7 off the open it was still down $13 on the day. We got to fade a huge bounce and at the same time get with an intraday trend.

  • This was a post earnings play and the gap down broke a long term uptrend in the name. News and a break of a long term trend.

Check out the below chart of ISRG (in green) against the SPY (in red). The arrow is our approximate entry. With a name as volatile as ISRG I did not expect it to move in a straight line. Immediately off the open I was offering stock higher and bidding puts lower.

When trading a name like ISRG and fading the bounce (but staying with the days trend), it is key for me to do less size. I scaled in. I almost hope my first short entry gets run over so I get filled at better prices. At the same time, if my first entry is hit and the stock rolls over I can add as it works.

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