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I Just Day-Traded AIG, It’s Dangerous & Addicting

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I did something very bad today.

I just day-traded shares of AIG.

I instant-messaged SVB earlier this afternoon and asked her to convince me not to buy shares of AIG (she didn’t). AIG is an insurer that had been getting pummeled lately because of, you guessed it, liquidity concerns. They needed to get a loan to help with short term liquidity but their fundamentals were pretty sound. The downgrades made it necessary for them to get additional collateral but the consensus was that they’d be OK if they got a loan.

My belief was that the Federal Reserve would be willing to lend them money because it would be in the best interests of the financial system. This wasn’t a bailout, it was simply a large loan, so that made it more palpable. The big catch was that Treasury Secretary Paulson said that they wouldn’t loan it any money… I didn’t believe them.

So I bought some AIG at $3.42. I watched as it fluctuated wildly in the low $3 but when it broke through the $2.90 mark (an artificial measure) I sold it. It eventually sold for $2.99. That’s when I repurchased shares at $2.85 and watched activity bringing it as high as $3.90. I put in a sell order at around $3.65 (as it went back down from $3.90) and it executed at $3.36.

All told, I actually earned a profit on the two trades of $226 after commissions.

A few minutes later, there were reports that the Fed is considering a loan package for AIG (this was information that was reflected in the share price prior to the Bloomberg report). Shares are now trading in the $4′s (at one point breaking $5 a share) as I hit publish.

I’m such a fool.

After-Hours Update: AIG dropped to $1.79, a fall of -$1.97, or -52.39%, from the close on news that instead of a loan, the Feds are considering conservatorship!

{ 25 comments, please add your thoughts now! }

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25 Responses to “I Just Day-Traded AIG, It’s Dangerous & Addicting”

  1. What you did and what the rapid AIG movements in the market prove is that we need the SEC to re-implement the uptick rule. Lots of short selling going on.

    As for the day trading, I am confident that there a great many PF bloggers out there who do not practice what they preach. The first question is whether you would have blogged about it if you lost money. The second question is whether you are going back in after the adrenaline clears your system. The market is still open.

  2. Cap says:

    I’m not even going to say anything since I’ll just be a big fat ugly stupid retarded hypocrite.

  3. You’re certainly playing with fire daytrading a stock like AIG. I nearly jumped at it yesterday with rumors circulating of Warren Buffett buying them out, but decided it wasn’t worth the risk.

    If you’re dying to daytrade something, try looking at the ETFs. They’re not as volatile so you have some time to get in and out w/out the huge price variations.

    Market is a little schizo today, and justifiably so.

  4. jim says:

    ToughMoneyLove: I would’ve blogged about it even if I lost money and the percentage of funds put at risk is a small one compared to our liquid assets. Also, my retirement plan isn’t predicated on successful day trading. I also did call myself a fool for doing this, didn’t I? If I wanted to hide it I could’ve easily done it, I just wouldn’t have written about it! Finally, I didn’t jump back in but thank you for prejudging me and assuming that I would.

    Matt: Haha, I wasn’t dying to day-trade, I just thought that there was an opportunity because the Feds said they wouldn’t offer a loan and I didn’t believe them. It was just a pretty crazy ride.

  5. Jim – whoa – don’t be so hard on me – just pointing out that you are human like the rest of us. I’m also one who doesn’t always practice what I preach. My questions were straight-up, not intended to judge you.

    Anyway, congrats on the profit-taking. You have more nerve than I do in this market.

  6. jim says:

    I understand you were pointing out that I was human, I don’t understand why you needed to, that’s all. You also phrased the questions in a way that made it seem like a statement to the community rather than straight questions to me, which elicited my response.

    If you don’t want to hear the answer to a question, it’s best not to ask it.

  7. It’s play money right? Well, if you can afford it and have play money to spare, it’s fine to do experimentation like this and see where it leads you! I guess I should have tried harder convincing you not to buy those shares! :D But a little “gamble” money is okay — again, if you can afford it and most importantly, can afford to lose it. I look upon it as akin to lending money to friends or family. Can afford it to lose it? Then it’s all good. But once in a while, you can get lucky, so that small gamble can potentially pay off big — you’ll never know unless you try.

    If you can’t afford to lose the money, I wouldn’t try it. I guess it’s a matter of compartmentalizing the money….

    I think we’re all fools in hindsight ;) . But that’s great on the quick $226! We should just be careful that day trading doesn’t turn into an addiction and we know when to pull the plug.

    @Cap — lol!

  8. “If you don’t want to hear the answer to a question, it’s best not to ask it.”

    Actually, Jim, I did want to hear the answers to my questions but it seems I hit a nerve so lesson learned.

    No worries – I’ll be checking back tomorrow.

    I wonder if AIG will be with us tomorrow? The government might as well officially get into the all-risk insurance business. It seems that Bush has now committed billions to rebuild Galveston and house its residents in the meantime.

  9. DebtKid says:

    Jim, Jim, Jim…

    (big sigh)

    Just be careful man.

  10. Jeremy says:

    Ahh, welcome to the dark side ;)

    A number of years ago I spent the better part of a year day trading while self-employed (more like unemployed). It was fun, exciting, stressful, and sometimes profitable all at the same time.

    I did kind of enjoy it, and I am really intrigued by studying and watching charts, but having to sit in front of a computer for most of the day knowing that getting up to go to the bathroom could mean a blown trade, being stopped out, or worse, a loss of money just became too tiresome. So, I went to more of a swing trader, holding positions for a few days instead, but that lacked the excitement. Now, I’m lucky if I buy and sell a position within six months.

    I’m now just a boring fund and etf investor.

  11. Jim, you’ve gone over to the dark side! Buy and hold! Buy and hold!

  12. @ Jeremy

    Sounds exactly like me except I haven’t graduated to those boring mutual funds just yet. I do the swing trades or bargain hunt those stocks that have recently been taken out behind the woodshed. Hold them for a few days/weeks waiting for the short term moves.

    Very profitable once you learn the techniques, but also VERY boring. Decided to start a blog to pass the time.

  13. Sun says:

    Good you sold it today. It will be too late if you wait till tomorrow.

  14. Todd A says:

    Gordon Gecko would be proud. (This reference shows my age, and probably doesn’t register with half the people reading this !)

  15. jim says:

    Sun: Yeah, there was no way I was keeping it. I was kinda right about bailing them out, I just didn’t anticipate how far they’d go.

    Todd A: I bet you more than half of the people reading recognize the reference, pfblog readers don’t skew young… they’re all over the map.

  16. Cap says:

    Gecko and “that guy” from the episode “Future Stock” in Futurama is my hero. I imagine jim was wearing similar attire as he clicked away to day trading riches….

  17. jay says:

    Right now it is hovering around $2 so good to get out when you did, and take the profit you did.

    Day trading is a hell of a lot more interesting then the investing I do. However, I obsess about my holdings even in my 401K so doing day trading I don’t think I would ever leave my computer!

    My fear on doing any sort of day trading is the taxes you end up owing on something you only own for a couple of hours makes the return need to be that much more to turn a profit. Unless I am mistaken you have to pay capital gains on anything you don’t own for a year?

  18. Kit Kat says:

    It is very exciting and addictive to trade, but really no one can predict anything short term in the stock market. Happy trading.

  19. Jim says:

    I guess I’m to conservative financially to risk real money on day trading. Day trading seems more like a form of gambling to me than investing. If I want to ‘play’ with stocks I do it in a safe way with fake money on Updown.com

  20. Andrew Dunning says:

    I bought $3000 worth of AIG last week at $2.50. It dropped to $1.90 or so and I decided to hold. On friday’s rally it climbed to $3.50. I decided to hold it over the weekend and just sold it about 10 minutes ago at $5.02. So I can say that right now I am quite happy.

    $3000 profit after commissions on a 5 day trade.

    Keep watching.

    I am 21 and have been investing/trading since age 16.

    I LOVE Gordon Gecko

  21. And another swing trader is born.

    Post your Schedule D in January. I’ll hold my congrats until then.

  22. andrew says:

    Yes my taxes are a bitch.

  23. George says:

    Jim, that was a rather high risk trade. I’m surprised you made it. I remember when you seemed hesitant to do risk arbitrage on going private transactions.

    I also scooped up some shares that traded irrationally low, but with much better odds. I bought BCE at $32.25 which was a bargain given that the company is being bought out for CDN$42.75 per share at the end of the year. I also almost bought shares of CEG at $23 even thought Warren Buffett’s subsidiary offered to buy the company for $26.50 a share. I scratched my head for a few minutes and by the time I decided I had all the facts, the stock shot up above $26.50! I couldn’t believe how fast things changed on the 19th. The opportunity on CEG never returned. :-(

    I really shouldn’t complain. The Special Situations Real Money Port is kicking butt, up over 15% this year.

    Jim, carefully consider the difference between speculation and investing. Speculation is much sexier, addictive, and also very dangerous.

  24. Billy says:

    I watched as AIG opened at $3.75… I Set buy limit at 3.50, thinking it would hit my mark. I got a little to anxious not wanting to miss the action as the stock teetered back and forth, never reaching my buy limit, i Finlay changed my buy limit to 3.62 and bought 270 shares.

    Not to much later, the price did hit the $3.50 mark! as i simulated punching the air and saying a few choice words. But over all i am excited! I predict doubling my money over the next week or so.

    I’m a little to nervous to day trade, … I like the term that Jeremy used “Swing Trade” I will watch it for a few days/weeks and see what happens.

    P.S. This is my very first trade…EVER!

  25. Wondering says:

    I bought 1100 shares at $2.90. Current price is around $1.70. Is there any point holding on? Is it likely these shares will gain in the long term, as it seems the short term is out. Fortunately I had been day trading on these over the prior few weeks, so am still up around $1,000 even now with the value as they are…


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