Bit of a dilemma?

[simonben]

I have been trading options for about 3 months with moderate success and upon getting alittle excited about my trading I broke every rule you should never break and now find myself in a whole world of you know what. However, upon doing alittle surfing on the net I stumbled across this site and have been perplexed by the wealth of knowledge in these threads. Therefore, I would value any feedback in relation to my present problem below:

I paid a considerable amount for a call that was ATM but is now very much OTM with 9 days left, little premium and does'nt look like making up ground.

Does anyone have any suggestions?

 

[Sean K]

Re: bit of a dilema ??

Wayne??

 

[Agentm]

Re: bit of a dilema ??

i could think of few things, have you got a current passport?

 

[tronic72]

Re: bit of a dilema ??

I have been trading options for about 3 months with moderate success and upon getting alittle excited about my trading I broke every rule you should never break and now find myself in a whole world of you know what. However, upon doing alittle surfing on the net I stumbled across this site and have been perplexed by the wealth of knowledge in these threads. Therefore, I would value any feedback in relation to my present problem below:

I paid a considerable amount for a call that was ATM but is now very much OTM with 9 days left, little premium and does'nt look like making up ground.

Does anyone have any suggestions?

How much are we talking? How much of your own money is invested? How much is NOT your own money?

 

[dutchie]

Re: bit of a dilema ??

Sounds like its a bit late to do much.

Whats the share?

Cheers

Dutchie

 

[doctorj]

Re: bit of a dilema ??

Whatever you do next make sure it’s well considered and isn’t likely to get you in even more trouble – the old adage about throwing good money after bad comes to mind.

 

[sails]

Re: bit of a dilema ??

I have been trading options for about 3 months with moderate success and upon getting alittle excited about my trading I broke every rule you should never break and now find myself in a whole world of you know what. However, upon doing alittle surfing on the net I stumbled across this site and have been perplexed by the wealth of knowledge in these threads. Therefore, I would value any feedback in relation to my present problem below:

I paid a considerable amount for a call that was ATM but is now very much OTM with 9 days left, little premium and does'nt look like making up ground.

Does anyone have any suggestions?

Unfortunately, unless there is a strong move in your direction into expiry, it's pretty much a case of the horse has already bolted and the best plan may be to just accept your losses.

That said, losing long options can sometimes be morphed into other strategies such as calendars, butterflies, verticals , etc, but usually best done a bit earlier in time when there is still a useful amount of premium left. Even then, there's still no guarantee of success, but they can either give more time or lower the profit zone. Really depends how familiar you are with these types of strategies - wouldn't recommend using them unless you have a good knowledge before hand.

Cheers!

 

[Magdoran]

Re: bit of a dilema ??

I have been trading options for about 3 months with moderate success and upon getting alittle excited about my trading I broke every rule you should never break and now find myself in a whole world of you know what. However, upon doing alittle surfing on the net I stumbled across this site and have been perplexed by the wealth of knowledge in these threads. Therefore, I would value any feedback in relation to my present problem below:

I paid a considerable amount for a call that was ATM but is now very much OTM with 9 days left, little premium and does'nt look like making up ground.

Does anyone have any suggestions?

Hello Simonben,

Firstly we can't give you financial advice.

Secondly, read everything WayneL, Sails and I have posted on derivatives, and have a look at wavepicker, Nick Radge, Lesm, Ducati, Marketwaves, Traderpaul/Yogi in Oz,Tech/a, Bunyip, Professor Frink, Motoway, Itssnakepliskin, Money Tree, Rederob, MichaelD, amongst many other notable posters for some perspectives.

Thirdly, you must understand that it takes years to work out how to make money consistently in the market, particularly with derivatives.

Now here are some lessons. Learn how to hedge, or limit risk. Buying (long) ATM calls with under 30 days time value is very risky since theta decay is your enemy. Also, volatility is often highest around ATM levels (not always).

There is also a huge risk if the underlying moves against you quickly and starts trending against you. This is presumably what you are experiencing now.

In your case, with so little time left to expiry the theta decay will be significant, and even a strong move in your direction will be blunted by the decay. Essentially you're winning scenario is to close in the money before or on expiry to get much back.

The alternatives in this kind of situation are – immediately exit and salvage what you can. Hang on and hope (not the most desirable strategy), Hedge by selling a call against it (risky and not advisable if you don't know what you're doing – the fact you got the direction wrong here tends to suggest to me your analysis may be fairly embryonic – also there is probably not much premium in it, and the collateral will make such a proposition a poor risk to reward scenario).

You could buy an OTM put with more time in it too if you think there is more downside (but then you're chasing and may short when you should be going long – a common experience for the newbie).

Better still, make your best assessment and with a cool head plan your actions and be satisfied with that.

A piece of wisdom I learned from a trader many years my senior was to assess each situation as if nothing had happened, and look at it objectively. Hence, the question should be asked, “is this a good trade”. If the answer is no, then the suggestion is that this is the wise course of action. So, the wisdom of not throwing good money after bad seems to be a compelling alternative in this case, is it not?

For me, the best thing I found to do in my early bunglings was to take the medicine and realise this is a very hard game, and resign yourself to at least 12 months effective study in a range of disciplines (more like 3-5 years).

You've probably done most of your money from the sound of it. Learn now that this is the price of your tuition in learning about the market. Understand that this is the hardest game in town, and the odds are against you till you can find an edge that works consistently. Accept that many can never achieve this, and that you may not have what it takes. This is a serious game, and very few can win consistently until they learn discipline, obtain the right psychology, set up a workable system, develop an analysis approach that works for you, learn money management/expectancy, and develop a grasp of strategy too. And that is just the start.

If you're going to play with derivatives, understand that this requires serious study. Read the post on all the key threads on this site, and this will give you a host of perspectives and pointers.

Judging by your current position, you have a considerable way to go. You are not yet ready to trade derivatives (unless you are trading very small positions like single contracts for example to learn to trade).

I suspect you need to learn about position size, and traded too much on a single high risk position. You need to learn about probability and risk to reward, and be able to assess things like time value (theta), volatility, and learn how to recognise traps out there.

I know this isn't what you wanted to hear, but it is I suspect what you need to hear. Good luck, and I hope some day you recognise the wisdom in this perspective.


Kind Regards


Magdoran

 

[happytrader]

Re: bit of a dilema ??

I have been trading options for about 3 months with moderate success and upon getting alittle excited about my trading I broke every rule you should never break and now find myself in a whole world of you know what. However, upon doing alittle surfing on the net I stumbled across this site and have been perplexed by the wealth of knowledge in these threads. Therefore, I would value any feedback in relation to my present problem below:

I paid a considerable amount for a call that was ATM but is now very much OTM with 9 days left, little premium and does'nt look like making up ground.

Does anyone have any suggestions?

Hi Simonben

The fact that you say you "have been trading options for about 3 months with moderate success" tells me you are not without talent in a mentally tough business. May I also assume that you know exactly what the appropriate trading action on your part was and is? Happens to most everyone starting out. Instead be grateful that the market is revealing to you where your achilles lies.

"If you can not run away from a weakness; sometimes you must fight it out or perish; and if that be so, why not now and where you stand."

Robert lewis Stephenson

Cheers
Happytrader

 

[Arturius]

Re: bit of a dilema ??

A newbie options trader who over bets on a position not understanding the power of time decay?

Color me stunned!

 

[simonben]

Re: bit of a dilema ??

Thanks to everyone who took the time to bother to respond, especially Magdoran and Happytrader. I have alot to learn... I know.

In reply to some questions: It was WPL ($4000 cost out of own capital) and the trade was meant to be a diagonal bull call spread, bought the long call 2 months out and was waiting for an increase in IV to leg in (never done that before, wont do it again) and create a spread where i was to go short OTM for the next 2 months to break down the cost and end in the black. However, never got the chance as it started to trend downwards almost immediately and started losing intrinsic quickly. In hindsight know what I should have done by then; but what can I say, had been doing so well up untill now and just got too confidant (stupid) thought it would have to come good.

Humbled by the market!

 

[wayneL]

Re: bit of a dilema ??

Thanks to everyone who took the time to bother to respond, especially Magdoran and Happytrader. I have alot to learn... I know.

In reply to some questions: It was WPL ($4000 cost out of own capital) and the trade was meant to be a diagonal bull call spread, bought the long call 2 months out and was waiting for an increase in IV to leg in (never done that before, wont do it again) and create a spread where i was to go short OTM for the next 2 months to break down the cost and end in the black. However, never got the chance as it started to trend downwards almost immediately and started losing intrinsic quickly. In hindsight know what I should have done by then; but what can I say, had been doing so well up untill now and just got too confidant (stupid) thought it would have to come good.

Humbled by the market!

You've obviously done some study before jumping into this. Legging in is one of those things where you are either a genius or a mug, but you're biggest mistake is sitting on your hands and watching it turn to sh!te... could have adjusted or removed the position long before now.

About what to do, can't really give any ideas (not advice) in addition to what Mags, Sails & Happytrader have already given without knowing strike, expiry etc.

I think you've learned something valuable here and should put it down to experience.

Good luck.