I made a bad options trade and it taught me something unexpected!

I made a bad options trade and it taught me something unexpected!

So, I messed up big time this week. Yes, you read that right. I lost my shorts and I’m kicking myself for it. However, it wasn’t without a silver lining and I’m eager to share that with you momentarily. First, let me walk you through my poorly timed and executed long call trade in Apple.Well, its Thanksgiving week and I’ve been blessed with the entire week off work. Now, most would say that’s great, and truthfully I did as well until Monday came around and I just didn’t know what to do with so much free time. As you may have guessed, I turned to my trading account to find some potential trades. Nothing wrong with that, right? Unfortunately, I’m wishing I hadn’t done that now cause what happened next was fairly painful.

So after firing up my monitors and searching a while I found what looked like a nice setup in Apple. The stock was down on the day with the overall market showing similar. However, Apple had reached a support level and was showing a bullish divergence. Even if the pullback (pullup?) didn’t last long it would be enough to take a few ticks and move on, or so I thought. Oh, wouldn’t that have been nice.

Instead, this happened…

Shortly after the trade was executed Apple nosedived another $2 per share and the long call that cost me $2 or $200 was now around $.85. I wish this was the point I said I thought about it and had a plan but that would have been to smart. Instead, I decided to average down my position and buy another contract. Of course, that didn’t work either and while I still have the position open I’m certain it’s not coming back. Why? Well, I goofed and traded the nearest term expiration month, effectively leaving no time or hope for a rebound. With the markets closed Thanksgiving day and a short session the day after I’ll need a 10 point jump in Apple in half a trading session just to break even. Needless to say, this trades dead.

The painful proof…

 

 

 

 

 

 

 

Key takeaways

That said, there is light at the end of the tunnel and while that was painful to experience, it did afford a few costly reminders;

  1. Never trade out of boredom.
  2. Have a plan prior to entering the trade.
  3. Stick to said plan.
  4. Consider selling short call/put verticals Tuesday afternoon???

Now the first 3 are self explanatory, all traders know this. Those that don’t are learning it here or will pay to learn (or remember) it in live trading. In either case, they must be adhered to as my story highlights, but number 4 got the mouse spinning the wheel upstairs. Ultra short term vertical spreads or ultra short term iron condors. Could that actually work?

I’ve often traded both, but never with only 2-3 days until expiration. I was always afraid to do so for fear of assignment. But the more I thought about it and the more I looked at my boneheaded Apple trade, the more intrigued I became. With only days to expiration the market must push all options OTM to zero and fast. Therefore, even an unfavorable move in the stock could still result in a profitable trade.

In any case, I’ll leave it to you to consider that strategy. I know I sure will.

Happy Thanksgiving and God bless,

Jeff

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.