jay_beckner

I play poker and trade options, seeking edges from study, reflection and analytics.

#009 BABA Calls Closed Loss

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Trade Details: Sold to close 4 Oct 28th Alibaba Group Holding ADR (NYSE:BABA) 103 calls for $1.02 (in at $1.95 for 2 days), $400.87 total proceeds. The trade executed at 13:34:09 when the stock was approximately $103.22.

Return: (49.1%) after commissions

Note: After a hot start to my trading challenge, I spent some time rethinking this website's home page and its heading, "Making a Trader." Ha. This tough stretch is reminding me that making a trader is exactly what I'm doing, and I have a long way to go.

On the positive side, I am making some good decisions and staying solvent. This trades blog is proving useful for reinforcing the ample trading lessons being offered by the market. Recently, I was surprised when I started referencing its growing content when looking at a new trade setup.

As for these BABA calls, there is a lot to discuss from mechanics to practical mistakes and the psychology of taking a loss after missing a profitable exit. I'll impart this misadventure by day.

Sunday

I established a weekly market thesis (e.g. grind higher toward the election, supported by positive technicals on the hourly SPY chart), set my target trade time frame (e.g. 1-2 weeks) and scanned my watchlist for setups on the hourly chart using the optionshouse 10-day view (BABA came up as a long candidate). With the company's earnings release 10 days out, I chose the weekly options to avoid the event exposure.

Monday

After the stock opened strong and pulled back, I bought in-the-money calls. I could have timed the entry better, but I was pleased with the opening trade. For details, see my previous post

I had an upside target, a support level and a technical trigger upon which I was focused. The stock hovered right above support until mid-day, but the technicals remained firm. BABA ended the session well, and the technicals looked even better going into Tuesday.

Tuesday

Thanks to an early technical surge, the hourly trend in BABA looked quite stable, and I decided to leave my home base for the coffee shop. I monitored the trade via tablet and mobile, but my focus wasn't at a prudent level. I also had lunch out...

My max profit opportunity (~30%) came between 1 and 2 p.m., 9 trading hours after entry, and I missed it. I got my technical (sell) trigger when the MACD histogram printed a lower value (see chart below). It was confirmed by a hanging man candle, falling momentum and deteriorating stochastics. Failing at resistance was another glaring tell.

5-day, hourly BABA chart showing trade entry, exit and max profit level.

5-day, hourly BABA chart showing trade entry, exit and max profit level.

When I got focused between 2 and 3 p.m., the stock was well into a slide that would shave a full point by 4 p.m. After your shot at a good exit has passed, you start thinking things like "it's just volatility" and "the next support level is near" instead of "there it was, I missed it, and the risks are climbing with every passing minute - get out." This is where the inexperienced and undisciplined get killed.

A few minutes before the close, I watched traders exit positions at adjacent strike prices. Instead of adding that info to the massive case to close my own trade, I started thinking that my now underwater calls (~13%) might be helped by Apple earnings, specifically new information about China - talk about burning down your trade framework and just gambling! How embarrassing...

Wednesday

Apple didn't help the markets, and Alibaba opened with a thud. I stomached the first hour of trade, but BABA offered hope in the second and third hours. During that time, I zoomed in on the 5-day chart to the 30-minute level and saw the MACD histogram improving and the other technicals trying to rally (see chart below). 

5-day, 30-min BABA chart showing trade entry, exit and technical break.  

5-day, 30-min BABA chart showing trade entry, exit and technical break.  

Clinging to a weak technical buy case (and my drowning calls), I fought off the "average down" urges between 11:30 a.m. and 1 p.m. when the calls oscillated between $1.25 and $1.50. When the 30-minute chart broke down, I finally cut my losses at $1.02. By the end of the day, they were another 25% lower.

The lessons of this trade: resist distraction and stay focused, stick to your solid trade plan, act on data not emotion and when the first irrational thought pops into your head... SELL! Secondarily, if you don't want to spend your time writing about the lessons of busted trades, then make better decisions.

In October, I've put in 30.5 hours at the tables (1/2 NL) over 8 sessions and earned a $2,261 profit, $74.13/hr. I wonder how much good performance there affects my focus and decision-making here. It's something to keep in mind.

Status: Account $1,932.45 | Q2 Return (49.5%) | Q2 Goal 59%

#010 GOOGL Puts

#009 BABA Calls