A Terrible Day

I enjoy those wonderful trading days when all of my positions are solidly in the green.  Today was not one of those days.  Aside from the wonderful two day move of $RIG, all of my positions were solidly red, some much more so than others.

I read a lot of blogs, articles, and tweets and many of them never make a bad trade.  There are some amazing traders out there, but I find it hard to believe they never have a losing trade.  Even some of the more infamous traders and chartists out there have gone "all in" short on this market at the close and when it opens limit up, we hear nothing about it.  Red arrows to the dowside... cries of "this is it" for the last five years when the market has reversed you hear nothing about the losses.  Rest assured today those very same perfect shorts are screaming to the hills.  They are pounding their chests.  I'm not sure how much more perfect they could be after somehow successfully shorting a once in a lifetime bull market, but today they are more perfectly perfect.  Let their glory reign forever.  Amen.

Me on the other hand.... Let me be 100% clear, as much as I'd rather not admit it, I make bad trades all the time.  Today just happened to be one of the worst trading days in quite a long time for me.

The great thing about our chat room, while I was drowning myself in a sea of tears, other traders were doing quite well.  $CF worked great, and many were positioned for this move.  I didn't rule out this move to the downside, but I felt I was in positions that were some what insulated to any downside.  Boy was I ever wrong!

It wasn't the amount of money I lost, when trading out of the money options more often than not I am down on a trade the minute I make it, so it wasn't the money....  it was how today went down.

I have $WFM calls in the ditto account that were doing quite well heading into today.  My plan for those calls, although they could be sold at any time to lock in the profits, was to hold for the move over $40.  It was well on its way until an analyst talked down the stock this morning.

The stock gapped lower and sold all the way down to $37.  My call options gapped lower and didn't stop until they were down 75%.  There was no stop order, no way to sell before the decline.  It was carnage and the risk that comes with trading out of the money stock options.  You never know.  We could awake tomorrow to a $45 per share buyout for $WFM or the stock could head another 3% lower.

I think $WFM is going over $40 regardless, but trading out of the money stock options with a set time to expiration requires to not only get the price right, but the exact timing of it.  Today's speed bump took the $1K ditto account down over 60%.  Mind you it was up 40% early on and anyone in the account could have sold for a nice profit.  I was clear that I would be trading a certain way, and the recent sell-off coupled with the move lower in $WFM outright sucked.  My plan was not to make myself look like a terrible trader, however the price action was happy to do that for me.

My other positions continued to drain down the shitter as the market weakness took hold.  What's worse is come mid-day I saw the dump accelerating.  A Key break downward out of a wedge signaled a sharp move lower was coming.  I saw it.  I posted it in twitter and stocktwits once the wedge resolved lower.



Yet that freight train had its lights on, its horn was blaring, smoke was billowing from all sides as it bared down on me.... yet I stood there and got steamrolled.  Like sticking your finger in an electric socket...  a deer in the headlights... I was frozen.  My options were already down sharply, it is after all only Tuesday, we may see a bounce as the week progresses.  That is my rational.  When trading options that open the next day with a big gap down, it's not as simple as having a stop order.

"Yeah long MSFT at $45.90 with a stop at $45.5"   it's  childs play simply going long a stock.

Out of the money options?  Not so easy.  Long MSFT $46 calls at $.45, if $MSFT opens tomorrow at $44.50 those calls are worth $.05 and a stop isn't doing you any good.  The only thing you can stop when your option goes south, is banging your head against the wall before it starts bleeding.

Tomorrow is another day and perhaps the market Gods will smile down upon me.  The market will rally, and those perfectly perfect shorts will go back to successfully shorting the next move to record stock prices.  Until then I'm going to dust myself off and get myself back to work.  I'm not too proud to admit I'm not the perfect trader.  The key is not to make it a habit.

Have a good night.

Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

More Posts by UPB: View All | Private Twitter Feed: Access Now! (For Diamond Members)

Leave a Reply