Hi all, I was away on various commitments yesterday and only had enough time to take quick looks at the market and especially AAPL and AMZN..
I of course was happy to see AAPL delivered such great numbers and as I’ve seen over and over it is what the ‘street ‘ wants and not what is actually delivered. I was surprised that AMZN followed suit with AAPL dropping.
OK, the bad news for me. MY 135 puts went up in cost and my position was immediately underwater. It wasn’t drastic enough for me to close, however it did raise my blood pressure. I took a peek as often as I could. I still had what I felt was enough cushion to ride out the storm. Eventually my AMZN puts leveled off and even got back to even. When the stock turned down again I decided to close the position and not go through the worry and anxiety, as I was not able to keep a close watch on the stock. Therefore, the bottom line is I took a small loss and will now wait until after the earnings are reported. Maybe and that is a big maybe... I will make a move on Friday. I do not believe that I have ever taken a loss on a position when I have nearly 25 points of cushion and only 3½ days to go. However, when I have a losing position, I try to not let the losses run away from me.
Opened on Monday. 2024 [75 puts]
Closed the position 2271
Loss of 247
I kept the position opened even though it was a losing one for a while thinking that ---
a. I had plenty of cushion
b. I could roll into the next weeks at a much lower strike and either break even or possibly make money.
However, the final call was made on the belief and experience telling me, just close it and breath easier. Not every position will make money. Just do not let those become the norm. In hind sight, mistakes I made were.
a. rolling into the 135’s from the 130’s
b. no patience with what was a nearly sure winner. (a continuing problem I have)
c. opening a new position during heavy earnings week.
My lesson to share today. Just wait out earnings week.
6 comments:
My initial plan was to stay clear. But I got in on Tuesday afternoon against my better judgment.
My intention was to get out on Thursday. Looking at PUTS not getting any cheaper, I was uncomfortable so I got out this morning at 4 cents loss.
Lesson for me is to plan the trade, trade the plan. Discipline the itchy hands.
I read your book last weekend after reviewing the short put forum comments on TradeKing. Very impressed with your explanations. I am curious on a couple of points. Why do you not put a stop GTC order at double your premium on all positions. This I would have thought would reduce the stress levels. I have scanned James Cordiers book "The Complete Guide to Option Selling" - he majors on selling puts on futures that are 50% to 100% OTM but also uses the 200% get out rule. - have you any views on selling future options rather than equity stocks?. I am interested you are now moving to weeklies I have not used them yet. I am a very small time player with $5000 in cash & $7000 in equity at the moment.
Hi Gideon and Hannah, I agree that it is wiser to wait and more than likely miss some profits, but the profits are always there. After NFLX reported that stock jumped higher. So maybe AMZN will also after tomorrow nights report. But if not then we still have other stocks to watch. If NFLX holds it gains, I might jump in tomorrow or Friday.
Regarding the weeklys. They are pretty new and not all that many stocks are doing them. More will come on line as interest improves. The draw is that there is such quick time erosion. Selling puts... the two devils we (I) must fight are time and greed...Regarding a GTC order. I do that if i am going to be gone all day or if the situation calls for it. Usually my strike is so far from the existing stock price it isn't necessary.
Lee,
I fear the inevitable one-day crash that drops prices 25% or more ... some global crisis, massive computer selling, or terrorist attack. When that happens, everything we have will skyrocket. Depending on how much of your margin maintenance one has used, this could wipe out an entire account. If this event happens on an expiration day, one may not be even able to sell out in time .. especially if you're out on the golf course!
This is what I worry about with this strategy.
Hi Lee,
Really enjoying your philosophy of trading and "Thanks" for taking your time in creating this new blog to demonstrate your trades and rationales.
I wanted to offer my 2 cents on Jim's comments re market crash. I too think about this. Moves over 5% in a day are very rare. I read recently that a 20%+ move happens once on average every 75 years. Last was '87. Before that, '32 I think. But, it could be tomorrow. To me it's a question of keeping my short put exposure small relative to my account size and don't compound my position size. So if I'm having a string of good months and my account is up 20% I'll keep my position size fixed rather than going for more income. Stop losses at 200% would help but you could get stopped out during a brief spike that evaporates in minutes. Also, in a market crash the market moves so fast that you might get closed out at 400 or 600%+. But you'd live to trade another day. And, you'd have some amazing put selling opportunities with premiums at irrational levels.
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