Sunday, May 15, 2011

Interesting Week: Got Chopped Up, But was given a Gift, and a Reminder

This past week was one of those where I felt like the ping-pong ball and not the paddle. The pictures pretty much tell the story. The trades below were all similar in that I used OCO orders to set my entry, exit, and stop loss points. It's frustrating to see your stop loss trigger literally be the high or low tick of the day. When it happened three different times in 24 hours it started feeling conspiratorial in nature. The only person making money this week was my broker. The total money lost on these trades isn't large, that's the purpose of using stop losses, but the net result is I had a serious of small losses and no wins. I don't mind being wrong, but for some reason if I'm wrong I would rather be really wrong and not just barely. The first thing that goes through my mind after wondering why the market hates me is if my stop losses are too tight, then I question why I use them at all, for clearly on these trades they would have all made money had I not used a stop loss.

But then Friday morning I was given a little gift. The IV on one of the stocks I follow had slowly gotten to what I felt were ridiculously high levels so I put an order in on Thursday at midnight to sell some far OTM calls to hopefully produce an income trade for the next five weeks as these were JUN expiration calls. I used an even higher price than the previous close figuring if somebody wants to pay me this stupid price I will sell, not really thinking it would get filled. So when my text message trade alert goes off at 8am I decide to log on and see what the stock is doing and why this could possibly get filled, I log on just in time to watch it crash. Less than two hours after my fill I was able to close out for a nickel. Any time you can capture five weeks of time premium in two hours that is surely a gift and I will say thank you and get out. It feels just as wrong, but in a good way, as being stopped out multiple times only to watch your desired profit exit point hit later in the day. So you take the good with the bad, if you trade long enough you will experience both multiple times.

So the picture above was my gift trade that made up monetarily for all the trades I was stopped out on, and below is my reminder. Remember one of the trades above where I lost .06 and was pissy that it would have been a winner later in the day, well it also could have been a $3.00 loser, which it was just 48 hours later. So while I was questioning the stop loss points I chose or even my use of them in general, I was thankfully reminded just why to use them. I'm happy to be sitting on a $60 loss and not $3,000. So ironically enough the gift and reminder (or second gift) were actually the same trade. I was short the JUN 15/25 strangle. Full disclosure: while the short calls of the strangle were closed out for a .70 gain, I am still short puts on this ugly chart at a cost average of $16.10, so could be in for some pain here as they are also JUN expiration.

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