3 of 4. FOMO and Greed.
More NOT-ADVICE.
From the first 2 of these posts it looks like the new year is working out ok for me. It is very much not unfortunately. And I can easily point to the specific trade and the bad thinking / personal rule violation I made that has me in deep. Like offset 2021 gains deep, with a good running start at the 2020 education gains as well.
An observation about this for everybody to be clear on - especially anybody reading along and thinking "easy money". Our dominant strategy in these parts is to open defined maximum gain positions with undefined losses (or at least really high % losses). Throw in some leverage of which margin, purchased calls, and spreads are all forms of, and the undefined losses can get really really big, really really fast. Like wipe out 20 months of gains in 1 week big.
This isn't "easy or free money".
On Monday Jan 3 with the big move to 1200 after P&D I closed my 800/1000 put spreads for an 80 or 90% gain. Life was good, a routine trade with an early and desirable close. Wondrous.
Then I repeated a mistake I've made before - one that usually works, but when it hasn't worked out, it REALLY hasn't worked out (both times). I opened new put spreads that same day with the same expiration. And I got aggressive - I figured we weren't coming back to 1100 no way, no how, and while I was at it - I also tightened up my spread width to $150 from my recent $200s. Open 950/1100 put spreads for Jan 7 expiration. A bunch of them (though mostly consistent with my own portfolio management strategy - a bit too aggressive in one account; so I only somewhat lost my mind).
OOPS. I've rolled those once to 950/1100s on Jan 14 for a $1ish credit and then rolled again today when shares were $980ish for a $5 debit to Jan 28. I'm pretty sure this is the first time I've taken a debit on a roll. The credit roll would have been to a 970/1120 kind of position and I figured the $5 debit was a better plan. On the second roll I wanted to stay away from the Jan 21 expiration, I wanted more time for the shares to turn around, and I wanted to be on the other side of earnings. I was also worried about the shares continuing to go down (and still am!) and had the thought that today might be my last good chance at a roll to buy time for a reversal. I figure these things all give me the best chance of the share price getting back over 1100 (and hopefully a lot over
).
After reviewing my decision making the two rolls were the right call for me for those situations. I don't like having Jan 28 1100 strike expiration instead of Jan 14 (this week) expiration, but I had hit my limit this morning and was creating a defense against the shares continuing down from 970 to 930 or further. Which they still can - I'm far from out of the woods yet. Just because we have, and use, management techniques on positions doesn't mean that they work.
The roll today has bought me time to the other side of earnings, which I continue to expect to be much better than wall street expects, and for the share price to go up significantly as a result. Now I have the time for all of that to play out and don't need to worry about being in an effectively unrollable situation. I do still have way too high of a chance at a max loss though; much too high for a dividend / income objective.
I made this bad trade because of FOMO / Greed. I kind of had the thought at the time, but Greed drowned out that voice.
The rule violation - don't "roll" a position towards the share price within the same expiration week (a roll would be on the same day). "Chasing" after the share price to pick up a few extra $$ is just not worth it (at least for me).
The solution for the rule violation is pretty easy - don't open a replacement position on the same expiration day, the same day that I close a position. It might work and yield a few extra $$ on the same expiration date. Its like double dipping! Unfortunately when the rather common reversal happens, and if its a big one, then a good situation can go radically bad, really fast. Like $120ish ITM on a $150 wide spread.
With an income/dividend point of view, even if this only goes bad 1 in 100, that's too much. New rule - don't do that.
But the other mistake is more subtle. How to recognize when FOMO / Greed has me in its clutches? It rarely does, but I succumb at times like I believe anybody and everybody does. I don't know how to avoid it except to be cognizant of the possibility and realize that when I do this right, I'll make money at any share price, and in low or high IV environments. I don't need to make hay while the sun is shining - at least so far the sun is always shining and I can make hay steadily any time that I want. Just be patient, let a whole single stinking day go by before opening the new position.
Others have different verbiage but the same idea.
The (newish) rule for me above is one effort to stop FOMO/Greed even when I don't recognize it. The "open into strength / close into weakness" guidance is another mechanism.
For some its some %OTM. There are plenty of others attempting to get at this.
Its nice to have rules to stop FOMO/Greed before it happens, but the reality is that there isn't a set of rules that will take care of it all of the time. Its not all that hard to rationalize bending a rule now and then because the setup is just too good to pass up. The only thing I see for this - be self-aware, be conscious about the actual objective / goal, and if I'm making trades designed to handily exceed my target outcome, then there's a really good chance FOMO/Greed has me in its grips.
Oh - and its ok to not have put or call positions open. It really is
