Wow. You both could not be more wrong. The reason for BIDU gapping up was still fully in force at the time of the trades. "Betting" against that with 300+ expiring option contracts because you felt BIDU "was overdone at 449" was reckless and totally avoidable, without any hindsight. Ever hear of giving a trade time to work? Talk about backing one's self into a corner with no room for error...
Hindsight or no hindsight. What matter is, who actually capitalized by going long on BIDU on Thursday given the "obvious" situation.
Let's try to distinguish between what was "right" and "wrong" here. If its a good expectancy trade, then who cares about the "wrongness" of it? One man's right is another man's wrong... Taking the trade in itself wasn't reckless, its the size and risk management that was reckless. That's the difference here. I'm not going to argue about what type of trading works for a certain type of individual, but, there are general best practices when it comes to risk management that apply to everyone, no matter the style of trading. The size of this trade was emotional and reckless, hindsight or not.
Yeah, in part and that's what I'm trying to point out. Trading options on expiry isn't wrong and using discretion to determine "overbought" isn't necesarily wrong either. Now, 300 contracts (wasn't it 12mil notional or something like that?) on a 400k account is wrong... the size is what is reckless here.
It's not that simple. One can't say that size on a 400K is ALWAYS reckless... the rationale behind the trade and what's being traded are also critical factors.
Well, in my book it is that simple. 30-1 leverage on one position is definetly reckless, no matter the trade. That's just begging for pain or a blow-up. FYI, I trade intraday only and my position size is never more than 3-5% of my account. Granted I'll have 100's of positions on occasion, some correlated and some not, but, my combined exposure to anyone instrument/market move is minimal (I also don't shoot for triple digit returns either). At 30-1, for one instrument, you're roadkill waiting to happen. Its insane no matter how you look at it...
How's his leverage 30-1? Besides his short position on stock, He brought long puts, and that's all he could lose. He leverage is 1-1 on these options.