This is a dire situation. Forecast loss will be at least USD 10k. Many mistakes made in this AAPL trade. I am going to list the following mistakes. In addition, my mistakes were further aggravated by the timely market correction.
“Owning stock is like having children. Don’t get involved with more than you can handle.”
- After cutting loss, you need to gain your grounds and be able to think before you jump into another trade.
- Do not over-leverage.
- Stick to your cut loss rule. No emotion at play.
I got an email from thinkorswim that I need to top up cash to cater for the maintenance margin call. That was the first wake up call that I have an over-leverage position.
How do you know that you have overextend your position? That is when you cannot sleep in the middle of the night. For the last two days, I woke up at 3 am to look at the market. I have never in my life gone through this when I was investing.
On the other hand, on Friday wee morning, US market has wiped out a lot of my paper profit for JC Fund but I did not fret because they are cash position. I understand this is a market correction before the market can reach a higher position.
I have two incidents when the share price returned to 168 and I did not manage to minimize my loss. I was praying that it will go further up beyond 170 which is my strike price. On Thursday after post market, the stock price did reach 173 temporary. I have discussed with my wife to close the position at below 165 and I fail to execute this as well.
I am going to pause any new trades after 16 Feb 2018 and review my temperament. There is a serious issue with it and I need to rectify this. Don’t need to beat myself up for this but I need to learn from it. Many things to unlearn and learn.
I have made a simplified checklist.
- Does the company have consistent increasing or positive EPS over the long run say last 5 years. Better still, if last 10 years. If YES, move to Step 2. If NO, kill this idea.
- Does the company have MOATS If YES, move to Step 3. If NO, kill this idea.
- Is there any interim results or annual results announcement? If NO, move to Step 4. If YES, kill this idea.
- Now, go to the chart www.tradingview.com , whether this stock is at the support line If YES, move to Step 5. If NO kill this idea.
- Before you execute the trade, check did you click SELL PUT? It should be red with -1 or -X amount
- Did you negotiate for a better price? The market is there to serve you. Have more margin of safety is good for you.
- To decide the quantity of Sell PUT, run a quick check, is the NUMBER of CONTRACT x 100 x SHARE PRICE < your CASH BALANCE? If YES, move to Step 8. If NO, reduce your quantity now! Save the headache, you can sleep better instead.
- Execute the trade and wait for it to be filled.
7th February 2018 – I closed 15 contracts of AAPL and accepted a loss of USD 18k which wiped out all my profit from options. I want this to be a very painful lesson for myself.