Well, that was unexpectedly unpleasant. Got bitch-slapped by my short puts. Stock => +$500 Spread => -$779 Net => -$279 I guess I'll keep paying for some more time to bail me out. Don't want to close in a panicky jerk like that.
I don't look at it this way in this particular trade. The whole point is to pay for time and let the stock wiggle. My max loss had been pre-defined at the start ... I still have some time for one good tweet to bail me out. If the market wasn't waiting for news from Washington, I would have most likely closed the trade already.
Damn, this thing is driving me crazy. Good day to close trade for about break even. But we have three things messing me up: 1. Market (and stock) is acting bullish. 2. Washington is about to come out with news (could be non event). 3. AAPL earnings is 1/29 and my spread expires 2/15 (could be non event due to earlier warning). What do I do!? ... stay tuned ...
Grrr ... BUT I know it's going to break out ... BUT look at the freaking market ... BUT the tariffs are about to be lifted ... BUT the earnings are so close ... BUT BUT BUT .... I gave it all the time I budgeted for ... time to do the right thing acknowledge "defeat." This trade is officially closed. See ya next time. Stock => +$1,129 Spread => -$1,027 Net => +$93 (woo hoo) Will need to reflect on this later.
I've asked to move this thread to Journals. Let's think a bit more about this now that the trade is closed. First, thanks to everyone for participating ... your input is valued. Second, some self affirmations ... Third, I would like to address (to myself) some of the suggestions made. Q1. Why not simply trade options instead? A1. I look at the stock as a theta-free leg of the synthetic long strangle. I want to keep the equity leg for as long as possible. Q2. "Falling knife = Wrong Edge" A2. Probably, but we are looking for new edges. Q3. "Why not just cut the initial stock position to an amount where you can tolerate the wider swings?" A2. I was thinking about how this trade developed and was asking myself - could you simply scale in every 5 points? No! Firstly, I would never take this trade, at the time with any size. The crazy gap down right after such a strong bullish candle?! I would leave it alone. Secondly, the intent of this trade is to see almost immediate success or failure on a grand scale(home-run). Slow and steady grind in any direction is a looser for this set up. Pros and Cons: On one hand, I like the pre-determined risk of the strategy (standard with options). I like that I can put full size at the point of entry. On the other hand, the capital requirements are large. The time decay is large. The probability of success is low. The expected number of opportunities is low(over-reactions to news is what we are looking for, earnings are excluded as they are considered as re-pricing events). What I like the most about this is that it's very counter-intuitive and should have the 10/90 profile (10% of winners account for 90% of profits). So is it time to throw away this idea? Doesn't sound very promising, but I found keeping a journal like this forces me to see things through to the end. So here's what I've decided to do. I will continue to paper trade this with below parameters: Maximum BP: $50K Maxiumum DD: $5K (of initial, so stop trading when $45k hit, but can risk 100% profits) Maximum #positions open: 5 Maximum loss per position: $500 (10 full losses with no winners, it's over) Maximum time in trade: 2 weeks (options portion only) Instruments: Optionable Stocks. High liquidity options even OTM. High Volatility stocks which can make big moves and trend nicely. Expectations: Well, at least twice the max dd, so 20+%. And we are off ...
Update on previously *closed* trade. AAPL released earnings and ... surprise ... someone got a chance to buy the stock at significant discount prior to earnings. Gotta love how Wall Street works. Stock => +$2,193 Spread => -$1,119 Net => +$1,074 So at this point, I would cover the short puts and let the long puts expire. Also note that the stock is above 50SMA now and in a bullish technical formation above 160. I would keep the stock and put a stop at break even (about 6% away). It would be great if this all happened within the two weeks. How realistic is it to expect 15% move within two weeks? Not very, but not out of the real of possibility. Note: Keeping the trade risking 1k to gain 1k would not be a good trade with such low odds of success. Closing the trade was the right thing to do no matter the outcome.