I have been trying to catch falling knives for a few weeks now.
Every time I think we're at a bottom, the market rally a bit to get my
hopes up and then continue to drift down more. In retrospect, there are
so many trading no-no's I have broken with that dangerous mentality. My
account is down significantly as of this writing and I have learned many
old and new lessons throughout these weeks. In fact, I have demonstrated
improving trading technique and psychology even as I was losing
money overall (what an oxymoron). Rather I'm trying to comfort myself or
not, the fact is that losing money is simply unacceptable in trading. So
I will review these trades in this post and perhaps learn something from
As the title suggest, this is a post for post-hoc analysis of the
options which I held into expiry (3 losing and 1 winning). I'll do this
chronologically. The longest Nov09 position I have is SLW Nov 2.5 Call.
I have been a big fan of SLW as I've written and traded SLW numerous
Instead of writing paragraphs upon paragraphs, I've annoted my charts
more than usual and will show more and write less in this post. I noted
my entry point in each trade, and labelled the stop and post-hoc ideal
[caption id="attachment_857" align="aligncenter" width="500"
My effective entry point in my SLW Nov 2.5 Calls were at SLW share
price of \$2.90 (SLW closed at \$2.81 Friday). I bought 2 Calls for
\$0.55 and at expiry, they are worth \$0.325. A loss of \$45 + \$15 for
commission as of this writing. I held on to my 2.5 calls and exercised
them, so +200 shares of SLW for me.
Next up is ABB on the same day. The share price for ABB was at \$10.31
when I entered. ABB closed Friday at \$9.95. I bougt the three ABB Nov
10 Calls for \$0.90. They are worth \$0.05 each. A total loss of \$255 +
\$15 for commission.
[caption id="attachment_858" align="aligncenter" width="500"
Then we have TCK entered at TCK share price of \$5.575. I bought two
TCK Nov 5 Calls for \$1.00 each and they are now worthless. A
complete wipeout of \$200 + \$15 commission.
[caption id="attachment_860" align="aligncenter" width="500"
caption="Teck Cominco Ltd."][/caption]
Lastly, there's this puny winning day trade in the last 40 minute of
Friday. I bought a UYG Nov 3 Call for \$0.55 and it expired for
\$0.95. A profit of \$40 - \$15 comission, so a total of +\$25 so far. I
held on to this call and exercised it. I have +100 shares of UYG to
carry over the weekend.
[caption id="attachment_868" align="aligncenter" width="500"
As you can see, if only I have used trailing stops, I could have held
onto some of the profits and not turn winning trades into a losing
ones. I didn't want to let the large swing in premiums stop me out
from a big rally. That's why I didn't use trailing stop. However, the
lack of subsequent follow-through and confirmation in the rally should
have been a glaring alarm sign. I should have put in trailing stops from
this lack of strength in the rally. Any counter-trend position should
be carefully managed with tighter than usual risk management.
I have let my undying hope for a rally clouded my judgement. This
stubborn need to be right is a very fundamental psychological flaw
in trading. If I can't stop doing that in the future, I might as well
quit trading manually and focus on developing my quantitative financial
engineering work. However, as I have noted, I think I'm improving
lately and upon further reflection, I believe I have come up with a
potential methodology to correct myself in the act ... More on this as I
develop on this technique.