The market has been on an unbelievable tear for the last 2 and half weeks. I had hoped for a pull back earlier this week to try to salvage this trade but the market continued to rip. This trade is pretty much a complete loss and there is nothing really to salvage. It's possible we could have a quick sell off tomorrow or Friday which might allow us to get some money back but it would need to come back down close to our strike at 1610 which is a steep sell off in two days. While the last two weeks were pretty brutal for this strategy, there were still two consecutive mistakes that I made that caused me to be in this situation.
#1 - When I opened the top side trade on Apr 26th I was way to aggressive with choosing the 1610/1615 strikes. I assumed the recent top resistance at 1595 would hold and it did not.
#2 - On May 3rd the market gapped up above our strike price on the good jobs number report and instantly putting the position down almost 50%. While the news isn't something I could have controlled, it was how I reacted that caused the next mistake. I assumed that the market would need to make pull back soon and it would be better to adjust the position at that point. I should have rolled the trade out right then as adding in the extra premium of another week would have given me more time and more options this week to do another adjustment.
If I had chosen a more reasonable strike of 1625/1630 on Apr 26th, then the position would not have taken such a large hit on the gap up and it would have been way easier to adjust the position. This was a good example of taking a bad situation and making it even worse.
Adjustments and attempting to limit losses are the most difficult part of this strategy. While it is only a small percentage of the time that these type of situations occur with this strategy it can easily wipe out the entire trade if not managed properly. This is also a good example of why they say you should only use a max of 20% of your account in this trade at a time.
No comments:
Post a Comment