I'm having a pretty good day. Portfolio is up 4.5%, almost all of it attributable to SMCI. I'm up 57.6% on the short position, initiated at a split adjusted price of $76.3.
I should probably stop here and thump my chest, but there's a lot more to this story.
This is my third attempt shorting the stock.
The first time, I shorted it as a mean reversion trade after it gapped up twice in May 2023. I figured at least the second gap would fill. Didn't work.
The second time was in Oct 2023, after the stock had gapped down and was floundering. It was a valuation short. Come Jan, momentum returned and the trade was once again a bust.
The third attempt, in Feb, started out much smaller. Gold and copper had taken off and I was happy riding my mining stocks. I shorted a single share just to keep it on my screen.
By June, the stock had hit an RSI of 100 (historic record) and rolled over. Volatility, as measured by Bollinger Band Width, had collapsed. I put 25% of my portfolio on the short position.
The stock had a band squeeze breakdown in August, the accounting fraud was revealed, and the rest is history.
While this sounds cool, and the third attempt has covered prior losses and then some, I can tell you I'd not have taken the third trade but for the collapsing band width.
I'd not have taken it at all if I hadn't done the work on the fundamentals behind the AI bubble.
Simply shorting something in size to be a Big Swingin' D**k only works in the movies. This is a lesson I learned long ago by trying to be a BSD and realising it doesn't work.
I love Victor Niederhoffer's books. As smart as he is, he blew up twice because his ego got the better of him. In my opinion, the only way to avoid that outcome is by being humble.
The market gives, the market takes away. Writing this note, and reminding myself of the failed trades, helps me deal with the big win.
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Good Trading!
Kashyap