Wednesday, August 11, 2010

Don't Get Caught in the Moment It Can Cripple You: Don't be a Pig

Yesterday late afternoon I started stalking Apple, ticker AAPL, for a short options combination trade. The chart above shows a string of tighter range days unable to break above 265 over the last 2 weeks, and today's move down. I was looking at 1x2 Put spread. Here I was looking to buy August 240 puts and sell both a August 230 and a 220 put for each one bought. The trade would put me net long AAPL at 210 if the stock were to close August 20 below 220. I am willing to own Apple at 210, but was betting that the combination would rise multiples if the stock started to fall and I would most likely sell it before expiry. The market for this combination was 4c bid and 6c offered just minutes before the close. I stuck to my bid and did not trade.

As I write this the stock is down $5.80 at 253.40 and the spread I was unwilling to pay 6c for yesterday is now showing a 41c/46c market. It could have been a 680% return in less than one hour of market exposure......if I was not a PIG.

Moral of the story, get caught up in the moment, fight for every penny, but remember the broad context of your trading premise. Like the lottery you've got to be in it to win it!

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