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Danger in shorting the emerging world

I should know better by this time than to try and short emerging markets.

First exhibit: my ongoing debacle of a trade in BZQ (double short Brazil), bought last September for over $20, and currently sitting at about $16 on a good day. Many, many headaches has this trade given me.

And now on to the second exhibit: last night’s bearish gamble on the Baidu earnings report, whereby after they beat impressively, turns into this morning’s upside riot:

There is, however, a crucial difference between the two trades. BIDU was done through options, specifically a put spread which absolutely limits my losses to no more than $725 of precious capital.

This year I am getting more and more enamored with the potential uses of options. For one thing, it tempers my natural distructive tendency to hang on to losers, a la BZQ.

Options aren’t without their own second-guessing, though. I sure am glad I didn’t go with the weeklies for the BIDU trade, giving myself at least a little time to recover. However, I’d really like to try to peg upcoming option trades to the March expiration date, which exactly co-incides with the one-year anniversary of this site, and my self imposed deadline for doubling my capital in that year.

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