Well said Mark! Thank you so much for pin-pointing out many of my current problems. I am not very familiar with the practical side of trading and I am staring at the market every day and hopefully to learn from experience. I am quite patient and unemotional and not worrying about loss at all. I don't have market timing skills, for stock or option. I want to develop, but don't know how. I have trouble managing entrances and exits. For example, I bought MS Feb 20 $25 Call at around $0.15 and today when it hit $1.50 I sold out and closed my positions. But I have no idea about how much higher it can go further. Maybe it can go much higher. I did a bunch of Black Scholes calculation and reckoned that even the stock MS may go higher further, given the time value that I am losing, esp. over the weekend 2 days, I might as well just sell it at $1.50 and not to wait longer. What do you think about my reasoning? Could you please give me some pointers? I do know the option combination/strategies in theory, but don't know how they are used in practice under different situations. Currently I am just at a preliminary level and I just buy call and put and make directional bets. When I won small, I also lost small. When I won big, I also lost big. That's why I am still struggling with the break-even line. For example, I am still under water for the BAC Call Feb 20 $15. For example, I know longing a straddle makes me a profit when the price movement is bigger than the break-even point. But that's very abstract thing, right? How do I predict whether the price movement will be bigger or smaller than a number? Betting on price is like a first order thing, we can at least conceive it conceptually and see it vividly in the real market. Betting on price movement that will be larger or smaller than a certain amount and betting on volatility is like a second order thing, very abstract. Volatilities cannot be seen. Even if the stock moves vibrantly today, it doesn't mean the implied vol will be higher (the implied vol is a future expected vol type of thing). On the other hand, this makes option trading fun. How to run these strategies and how to manage risks, those are exactly the questions I ask myself. And I am vigorously reading books and thinking about these questions. But so far I am still at a very preliminary level. "what you are trying to accomplish (besides making a profit) from the trade?" that's a good question. I derive fun and mental satisfaction from these daily volatility and in-and-out type of movements. Both large profit and large loss make me happy and excited. I am not trying to assume that knowing some math will be naturally give me an edge. I honestly think I am just a humble student of the market and am learning hard every day, thru win or loss. On the other hand, I was just trying to say that maybe I can be a little bit useful if anybody wants to run some sort of statistical data analysis or strategy lab, humbly speaking. Thanks a lot Mark for your pointers and yes please continue guiding me through this jungle. I really appreciate your thoughts!
If you are that regretful, maybe you don't trade without emotions as well as you believe you do. Once you sell your options, it's no longer your position. Learn to be concered with positions you own, not with positions that you used to own. All you can do now is decide if and when to open a new position, and which stock to trade. Mark
Yep, I had a short regret because I should have used a trailing stop for that one! Ouch! But I was no longer regretful at all any more. Thanks for your reminder!
Thanks Mark so much for your detailed and very helpful pointers! It took me a few moments to fully digest your thoughts. What's your definition of market timing? Why is it so hard? It's actually already worth almost nothing. So maybe I should hold onto it, while book a loss already, but in hope it will at least rebound a bit, just a bit? Why? I haven't explored the straddle yet. That's exactly my next level pursuit... so far I am just doing some buy-and-hold. And next maybe I should sell some options and do some strategies... Okay, let me get hold of a copy and take a read! I am sure it will be a nice read. I have already known the BS, vols, greeks, etc. :=) Thanks a lot and have a great weekend!
Thanks a lot Mark. Maybe I can understand this way - when we are investors with smaller fund, we are not that risk-averse, and we are more risk-taking. We aim at strategies that are a bit fast in terms of reward, etc. But when we have $1m in account, then we become risk-averse and begin to turn to strategies that can lead to stable return and limited risks. At this stage investors may favor more scalable trading strategies. Many "fast" small-investor type of strategies no longer work any more. But "selling covered options will always be scalable"... Am I understanding correctly? Thanks a lot!
Mizhael I too have recently begun to dip my toes into option trading with similar results. Maybe we could discuss our trading methods and shorten the learning curve a bit =)