They say one of the things that separate…

They say one of the things that separates the great NFL quarterbacks from the the lesser ones is the amount of time the Peytons and Bradys put in watching film.  They go back and watch the replays of their best and worst moves so they learn from experience.  Great traders do the same.  So, let’s walk through the play by play of this Riverbed touchdown and also update on how to trade it now.

Last week when Riverbed and its brethren were getting hit, and the stock had fallen from $37 to $34 I wrote the following:

Obviously the big mover in our portfolio today is Riverbed. Unfortunately, its a big mover in the wrong direction. Some analyst on the street thinks that Riverbed’s competitor FFIV will miss its quarter. I would agree that its a possibility, after all FFIV missed its quarter last time. Riverbed on the other hand delivered a stellar quarter. We’re still at a fraction of the size I eventually want to be at in Riverbed and I will be looking to buy more next week. But I’m not going to today – I will let it settle first.

I then followed the post up a couple days later with the following:

The stock’s fallen another $2 since then to $32 a share now.  That is, it’s still not settled.  But I’m starting to like the set up, and will likely buy some common and/or some out of the money calls (if I can get the right price…we’ll see) in the next trading day or two.  Let you know when I pull the trigger.  More in a bit.

And then I followed that post up with the following:

I bought a tiny bit of Riverbed calls with strike prices at $31 and $32 a share or so. Most stock options move in $2.50 increment strikes– say with strikes at $30 and $32.50 per share instead of $31 and $32 strikes as are available in Riverbed’s case.  And there aren’t usually options offered that will expire this month, next month and every month for the next few months.  But there is a lot of interest in Riverbed options apparently and thusly there are many more options with our options (so to speak).  But I would look at calls that expire in April, May and June and buy any of them with a strike price from about $30 to $35.  And again, be careful on such short-term trades, because if the stock just sticks around there, we can lose most of the capital invested on these options as the time value slips away as the date of expirations come closer.

The stock is up 15% today because the company reported a blow out quarter.   Of course, it did touch below $31 a share yesterday, so I didn’t catch the exact bottom.  And so here I am, even though I’m long common stock that’s up 15% just today alone and I’ve got call options that are up huge now as a result…I’m still disappointed that we didn’t catch the exact bottom and make even more money.   It’s that very “it’s never good enough” logic that is one of the things that will make us better traders over time, of course.  (It’s also why most good hedge fund managers are always miserable!)  Feeling like it’s “never good enough”, even when the trade works out for us, makes us strive to be better.  I will strive to do even better for you guys on the next trade.

Speaking of the next trade, let’s talk about what I’m going to do with Riverbed now.  Because I used calls I’ve got some nice leverage in this stock now in addition to the still-small common stock position I’ve been slowly trying to build.  I’m going to let both the calls and the common ride for now and I might eventually let these calls convert into common if they’re still in the money when the time comes.  Sometimes we have to let the winners ride.  And Riverbed is a winner, at least for us.