My short chop in RMBS got busted. Dov made the biggest chop on our desk and his profits were eliminated. NASDAQ put out this statement. Tough spot for NASDQ.
I am the last person to complain about this stuff. The market is like the Wild West and I have come to accept this. Trade long enough and you will as well. But as a veteran trader I was surprised by the decision to bust these trades. Here’s why…..
RMBS had a sharp move down from 25. This fast down move got our attention. And then from 12:45 PM to 1:20 PM RMBS consolidated. RMBS is often involved in litigation that invites precipitous moves. Our desk wondered if some negative litigation breaking news was about to hit or had hit and this downmove was the result. On the tape RMBS could not trade above 23.40 after the sharp downmove. I got short. Spencer instructed to a few short on the desk,”Give RMBS some time. It might really tank.” This was a classic bearish technical pattern.
So for 35 minutes RMBS consolidated after a sharp downmove. This is why we were all short. And then RMBS collapsed to 15.75 for a few seconds, popped to 19, and then found 22 pretty quickly. I covered near 19.70. With so much time going by and the consolidation near 23.40-23.20 this seemed like a legitimate downmove to me. Obviously the amount it traded lower was highly unusual, but the fact that RMBS collapsed was not.
This was not like the DNDN move from April (DNDN dropped from 24 to 8 in like 90 seconds). I was in that move and those trades were not busted. I ate the huge rip. NASDAQ probably received a great deal of heat for this move and this may have influenced their decision to bust these RMBS trades below 20.73 today.
According to NASDAQ we cannot appeal their ruling.
This was a good short. One I will make again. When you see a stock make a sharp downmove and then consolidate lower, this is an excellent risk/reward short.
Interesting start to the trading year. The action in RIMM, GERN, STEC, SEED, JOYG, AAPL, CHK offered excellent intraday trading opportunities.
Best of luck with your trading! Don’t forget to follow us on Twitter.
Long GERN, STEC
7 Comments on “RMBS Trades Busted”
Bella:
Can you please elaborate on the cancellation process.
The NASDAQ website states that all trades between 1:28 and 1:32 are cancelled.
What would happen if you went short before the busted timeframe and covered during the busted timeframe.
For example, if you went short at 23.40 and covered at 16, only the cover was during the busted timeframe, does it mean that NASDAQ took away the profits and gave back your shares? (the short at 23.4)
What would happen if you went short during the busted timeframe and covered after the busted timeframe.
For example, short 23.00 and cover at 22.00.
Greatly appreciate your response,
Tapetrader
Bella:
Can you please elaborate on the cancellation process.
The NASDAQ website states that all trades between 1:28 and 1:32 are cancelled.
What would happen if you went short before the busted timeframe and covered during the busted timeframe.
For example, if you went short at 23.40 and covered at 16, only the cover was during the busted timeframe, does it mean that NASDAQ took away the profits and gave back your shares? (the short at 23.4)
What would happen if you went short during the busted timeframe and covered after the busted timeframe.
For example, short 23.00 and cover at 22.00.
Greatly appreciate your response,
Tapetrader
Tapetrader,
I was short from 23.40ish and I covered 21ish and then 19.70ish. My profits from my covers at 19.70ish were taken away. So after the NASDAQ ruling I was long the shares that I covered in the 19.70ish area. I made some on the 21ish coveres but my other profits were eliminated.
Hope that helps.
Mike
Tapetrader,
I was short from 23.40ish and I covered 21ish and then 19.70ish. My profits from my covers at 19.70ish were taken away. So after the NASDAQ ruling I was long the shares that I covered in the 19.70ish area. I made some on the 21ish coveres but my other profits were eliminated.
Hope that helps.
Mike
Bella,
Thanks for the response.
I am puzzled why the cover in the 19.70ish area turned into a long after the NASDAQ ruling.
My main concern is that if a trader were to make a mispricing fade play and go long in the 16ish area. Would there be any chance that it could turn into a big loser due to NASDAQ ruling.
Tapetrader
Bella,
Thanks for the response.
I am puzzled why the cover in the 19.70ish area turned into a long after the NASDAQ ruling.
My main concern is that if a trader were to make a mispricing fade play and go long in the 16ish area. Would there be any chance that it could turn into a big loser due to NASDAQ ruling.
Tapetrader
Tapereader,
If you faded and bought at 16ish the trade would have been broken. All trades below 20.73 were broken. You could have bought 16ish and then sold at 20.76 and then really been short from 20.76 after the ruling. That would have been a ripper since RMBS was near 23ish near that time.
Bella