May
19
The option trades I put on a few weeks ago have been doing ok. One has worked out real well, the other has not. Since it has been a few weeks, I am posting an update to share what I have observed and learned so far.
Darden: Things are looking good for this trade. The stock is currently trading right at the strike price, and if the indices continue to decline over the next two months, this trade should do very well. This option has, at one point, almost doubled, however, I am reluctant to sell since this option does not expire until the third Friday in July and the price can still go much lower. In my earlier post, I mentioned that the stock should fill in the gaps around $30 – $32, so if the price gets down that low, I will consider placing a trailing stop.
QQQQ: Argh! This trade was a mistake to put on. I didn’t follow the chart and, as a result, the Nasdaq has moved higher and more or less maintained its ground. I was banking on a quick pullback, however, I am getting hit on both sides:
- This option expires the third week of June. As that date approaches, the stock needs to move quickly downward, or it will expire worthless.
- This option is still far out of the money. Since this option has no intrinsic value, every day the stock remains above the strike price, the more worthless my option becomes.
If the option hits breakeven, I will set a trailing stop. If not, I will lose the money invested ($86 * 2) and learn from my error.
Takeaway: It is easy to fall into the buy and hold mentality, however, there are numerous reasons why we could be facing a Japan style deflation or plunging stock market. Intelligent options trading (both buying and selling) can allow investors to make money in up, down and sideways markets. While I am a novice at trading, I believe it is helpful to learn these skills now, while I am young and make my mistakes early.
I am also thinking about how I can learn lifelong skills (like trading) now… skills like public speaking, patience through volunteering, and meditation are worth learning and now is the time to learn.
For the trade log, click here.
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