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Monday, April 2, 2012

April Week 1 Trades and Adjustments

Okay, in the interests of learning and a reluctant attempt at full disclosure, I am going to show you how/when things can/do go wrong -- and as i am studying how to make adjustments to trades gone wrong, this is a perfect case! Wrong, wrong, wrong!

The last Apple (AAPL) trade is the easiest to explain. It doesn't appear on my original schedule, as I put on the trade after I started this post. The stock came down below my $620 Short Put. I closed out the trade by adjusting it. So I rolled the $620 Short Put down to the $615 Short Put. Mistake #1 was jumping the gun. The stock bounced back and is sitting at $623.28 as I type this. My $620 Strike would have been safe today (I think). But by adjusting to the $615, I took in some credit, thus reducing my debit loss. So I didn't get to keep the original $304.40 credit, and I lost ($83.19) in the reversal. Not such a terrible loss, but (likely) an unnecessary one.

The Priceline (PCLN) debacle is another thing altogether. Here is a case of emotions getting into the mix and really making a mess. Note this is a Bear Call and not a Bull Put. I don't do well with Bear Calls, and this one is the poster child for my idiocy. In this case PCLN's stock went UP, against the pullback happening all around it, and hit my $735 Short Call. The losses would be extensive, since I had five (5) contracts so I decided I would roll the trade out to another month, and try to save some of the loss.

My intention was to reverse the Apr Week 1 trade, and roll it to May. But when I input the order, I made an error. Instead of reversing the original trade, I duplicated it! I sold 5 more, and bought 5 more of the AprWk1 trade! AND I completed the May trade at the same time. So I was left with 10 contracts on the BAD trade and 5 on the new good May trade. This is where the emotions went NUTS. HOW COULD I BE SO STUPID TO NOT READ THE ORDER MORE CAREFULLY BEFORE I PULLED THE TRIGGER??? With trembling hands, I immediately went back and reversed the 10 contracts, (which cost me more fees) and gave me a headache because again it was all soooo unnecessary!!! As a result the AprWk1 losses were ($1,363.43, offset by the credit I received from the May adjustment of $934.89, leaving me a net loss on PCLN of ($428.54.) But the May option has not expired yet, so that $934 is not "mine" to keep until the trade ends. (for all I know, PCLN will hit that short call too. I have no business being in a bear call in a bull market, but this is an example of how a pullback can fool you.You will note that PCLN was at $723 when I put on the bear call. That gave me a $12 spread. Not nearly enough in a stock this volatile. So this is how I learn, always the hard way. If I'm right about a pullback, it might happen before May, and this PCLN bear call will be good. Otherwise I'll have to adjust again.

So, the bottom line is that this week's earnings on these credit spreads is a total reward of $462.83 instead of $1,343.80. But of course there's one more day of trading left...so who knows by 4 pm today what might happen?

ADJUSTED TRADES on WEDNESDAY OF APRIL WEEK 1 (short week due to Good Friday holiday)


Note: these are weekly option trades only. Any other monthly or LEAPS do not appear

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