Trade Retrospective: Long Cloudflare+Crowdstrike / Short Okta
A short victory lap, what to do from here and then some words on assessing the risk-adjusted impact of decisions resulting in less-than-optimal PnL
I’m currently laid up sick in bed with a stomach virus, so the images in this article are all going to be screenshots off my phone instead of the usual nice chart layouts. And, please, no “get some rest, Citrini!”. Being sick is utter boredom and it’s a great time to do some portfolio reflection, if you’re a weirdo (I am). Enjoy my feverish ramblings on risk management.
A common routine for me the past 4 months:
>market opens (9:30AM): react to anything crazy, trade my tactical exposures
>daily portfolio review (10AM): check where I’m killing it and where I’m getting killed, I typically wait until 10 to see how they’re trading during the opening range (this and the close are the most important times of the day for any single name equity, although I’d argue that in a bull market you get more signal value from how names “mark the close” - very easy to stay in names that are regularly closing at the highs)
>10:01AM check portfolio PnL detractors (always been a “give me the bad news first, doc” kind of person)
>OKTA is up, panic
>10:02AM check portfolio PnL contributors
>NET & CRWD both up either as much or more than OKTA, everything is great
I keep saying it but this is the one of my favorite long/short trades I’ve ever found myself in, only a close second to the long FLEX & NXT short ENPH I had on for about a year and recently took off.
I have enjoyed being pleasantly surprised by this routine almost every day this year that OKTA was up, as it translated into a total return of more than 64% and a relatively chill equity curve (in the context of a long/short play where drawdowns of 20% or more in a month are not unheard of when the market is angry with you for trying to relegate its beta):
Cybersecurity has such amazing tailwinds and to have such an incredible laggard like OKTA as a short to fund these longs, which is both suffering from idiosyncratic problems and simultaneously is not going to scale from those tailwinds as significantly as other names, but also is large enough in market cap and does not have the risk associated with the kind of occasional squeezy action that makes shorting a more familiar underperformed like Solar Winds (SWI) very uncomfortable.
Below the paywall, I’ll discuss what I’m looking at keeping this play on from here in Cybersecurity and how I’m looking at this play progressing from here below the paywall, as well as go into some key advice I think is important for whenever one does a post-mortem or retrospective on a trade they’ve already taken and/or exited.