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Note: Realizing this isn't the first time learning this lesson in the last month or so, I added a Study tag to this blog. Perhaps the filter will help me ingrain the good and tough lessons published here, to achieve better decision-making more quickly - these mistakes are killers, and I can only make them so many more times...
Honestly, I don't want to spend a whole lot of time lamenting this trade. It was pretty damaging psychologically as it never should have happened. Consider the lessons learned in trade #008: short options' duration, significant theta risk and poor technicals. Those are all present here. Trade #009: gambling that overnight risk can work in your favor. Trade #006: markets with currency/commodity risk, recency bias, trading multi-frequency technicals.
As I planned another mea culpa post, I took notes on the anatomy of a total loss which, in this case, include:
- Trading a mixed technical picture - be extremely risk averse overnight when using a short-term option to add to a longer-term position and the short-term technicals aren't perfectly aligned
- Never assume that overnight risk will help in a trade that is going even mildly against
- Theta risk is real in the weeklies, especially Thursday to Friday - it was the majority of the premium left on Thursday which is a must exit
- Option contract volume was clearly on the other (put) side
- When you leave the position on overnight and the market opens against, reducing the premium to almost nothing, you think, "Why close this now; I'm getting the odds to hold/look for a bounce..."
- When you finally give up and enter your $0.02 AON order, you're toast
I knew on Thursday near the close that I needed to take the loss and sell these options that I bought for $0.50 at $0.36, but for some reason I couldn't find the trigger. This is a tough one - I need to be resilient, but also think through the psychology of this trade very carefully.
I see that my trades this quarter have been on the early side (before the technicals confirm a move) and too frequent. In the near-term, I have to balance added discretion and missing opportunities.
Status: Account $1,461.50 | Q2 Return (61.8%) | Q2 Goal 59%