The Perils of Market Timing

    A few days ago during my attempts at economic analysis-which I am very interested in, I digressed to a discussion of the market. I mentioned that I found Bank of America stock interesting. Finally I couldn't help myself and jumped into some $8 calls on Friday morning, the morning of that awful jobs report for August-no jobs created.

    My reasoning basically was that I thought BAC had hit a bottom back in August when it dropped to a 6 handle but with the investment of Buffett and his declaration that "this is not 2008" and it should be able to rise back to at least back in the double digits again in the not so distant future.

    On the morning of the report while I recognized how negative it was, I also figured that as often happens the market comes off the ledge after the immediate drop. While prior to Friday when BAC was trading around $8 I was looking at the $9 calls for Sept or maybe the $10 calls for October, the huge drop made me think that BAC should at least be able to come back to $8 possible very soon. Where as I was waiting for a good price on Sept $9 calls prior to Friday, with the drop the $8 became very affordable so  with BAC trading at only $7.34(it had closed previous day at $7.97) I jumped into 10 calls at just $.17  each

   While I had thought that despite the huge early sell off that day, by the end the market might rally some, as it had already dropped big the prior day as had all the Asian and European markets over night. However the rally never came.

    I thought maybe on Tuesday(yesterday) it would come back. And then what happened is when I saw the market down huge again they faked me out(by they I mean the market, perhaps a malevolent Providence-an improvident Providence; but mostly of course, the option sellers. They say "The House Always Wins" but nowhere is there more truth than the House of the Market Makers) I panicked more implicitly assuming that the market would go down forever by 250 a day as it had the last 3 days. When I got out of BAC it was trading at $6.83 with a price of just $.11 an option. Overall it was a nifty little loss of $96-when you factor in the transaction costs(like I said the Market Makers have it made).

    Of course almost in response to it-almost as if (im)provident Provicdence did it just to spite me, and the market and the market makers were waiting for me to get out, BAC started to rally and closed the day back at $7.07. Today with the market excitement about Greece and Italy maybe getting help, the market is up, the Dow is up 3 digits, BAC is now at $7.25 and the options are worth the same as they were when I sold them yesterday. So my concern that I would lost my entire investment till now has not come to fruition.

    And if the market continues to roll today, BAC could go higher and I would(if I were still in)stand to realize some gains. In retrospect it would have been better to play October but of course my desire to realize immediate gains got in the way. A $10 call would have been safer. Even now it is a plausible bet.

   Then that's market timing for you. It will kill you every time. The worst feeling is to be right but early.