I once read a story about a trader who was quite successful trading futures – E mini S&P 500 and he was making a lot of money. Later he wanted to start trading different markets and he decided to trade currencies at Forex. Guess what. He almost lost everything. So he got back to trading E mini S&P 500 and continued making a lot of money.
I once traded advanced options. Some of the strategies were long options and all sorts of spreads. I was making money a bit, but at the end I lost almost everything. So I started trading short options and I became successful. I recovered my account and even doubled it twice.
So I decided to start trading long options and spreads again. Since now I was a lot better trader and making a lot of money, right? Guess what?
All trades I took turned out to be losers again.
I had a trade against GLW (3 long calls) and AAPL (1 long call).
Both trades quickly turned against me and I started losing money. I closed GLW trades for a loss quickly a few days ago. Yesterday, I sold a short call against my long AAPL call (as a calendar spread), but today I couldn’t bear enlarging losses on the long call. Not only I was losing due to shrinking intrinsic value, but also a time value was eating up my trade. It was supposed to be a swing trade. I wasn’t ready to hold it for a longer time to go over a stock price drop and hope that time decay won’t destroy the value so when AAPL recovers I won’t make anything.
AAPL will post earnings next week. Will the stock skyrocket or sink even more? Who knows? And I do not want to hold an option I am not comfortable with. Be it a short option I would feel more comfortable even though some consider it riskier than long option.
So I decided to close my long call for a loss and keep the short call offset the loss. And hopefully next week the short call expires worthless and offset the loss by roughly 50%.
I bought the call for $855 and today I sold it for $650 creating a $205 loss (-24%). If my short call expire worthless next week, my loss will only be -$100 (or -12%).
If the stock spikes up on earnings, then I will be screwed.
Next week will show.