Learned a Trading Lesson the Hard Way

by Evan

 

I learned a trading lesson that I thought I was better than.  Two caveats before I work through what happened in an effort not to make the same mistake twice:

  1. We are not talking about a lot of money actually lost.  This isn’t a four or five digit mistake.  Just a few hundred dollars of gains that were lost; and
  2. We are talking about pure trading/speculation.  The moves I made/didn’t make should not be considered long term investing.  This was basically betting without the sports.

Normally I would just move on from this type misstep but I feel like I should be accountable to myself by writing up an account in the hopes never to do it again.

It All Started on a Boat

Sometime in the middle of July The Wife and I were asked to go on a boat with a group of friends that we have known since all of our oldest children were in gymboree together (call it about 8 years).  One buddy knew that I followed the market like most people follow their favorite sports team.

He was particularly obsessed with weed stocks.  I told him my feelings on the subject, none which were positive, and ironically haven’t changed much since I first checked marijuana stocks out (or the second time I checked them out).  It is not that I dislike the underlying business, quite the opposite actually, legally selling something that a lot of people love seems like a great idea! Rather, it is the valuation and pure betting as to which one is going to survive.  I mean how do these companies lose money selling weed!? There are hundreds, if not thousands, of high school students who could teach these executives something.

Despite my reserves he pushed about how his was different.  He was not allowed to trade due to his job, but the one he watches was Aurora Cannabis ACB and it kind of just bounced around 5 and 10 bucks for the past 2 years, and if you could time it right a lot of money could be made.

Immediately, I thought of the options world.  I have done this in the past where I take small bets on hunches (my own or others).  Sometimes they hit and sometimes they don’t, but I don’t usually come and write a post about it.  So why am I this time? Because I didn’t get out in time! 

When Speculating on Stocks or Options Have an Exit Plan

So I bought three different lots of call options at different times within a 10 day period

  1. The first trade was for 6 contracts that would allow me to buy 600 shares (100 shares per contract) at any time prior to August 23, 2019 if the stock reached over $7.50.  Each contract cost me $18 or $114.10 total with fees. This trade was entered into on 7/12.
  2. The second trade was for 5 contracts that would allow me to buy 500 shares at any time prior to August 30th if the stock reached over $8.  Each contract cost me $12 or $65.08 total with fees. This trade was entered into on 7/18.
  3. The last trade was for 5 contracts that would allow me to buy 500 shares at any time prior to September 20th if the stock reached over $9.  Each contract cost me $5 or $30.08 total with fees.  This trade was entered into on 7/24.

As you can see I bought more contracts, essentially doubling down as the stock went down over those 12 days.  Like I said I didn’t have a ton of money into this trade, only $209, but that shouldn’t matter!

As the chart shows the stock popped right after the third purchase.  This caused the options to skyrocket as no one knew if it was going way up to and beyond the strike prices.  I don’t have the records, but I have to estimate across the board I was up 250%+ across all the trades.  Yes, that is only a few hundred dollars but so what! That type of thinking is precisely the mistake I made here.

Instead of making a few hundred dollars the first two trades expired worthless and I just sold the last contract this morning for a 90% loss.

TRADING LESSONS LEARNED/REMINDED:

IF I AM SPECULATING TAKE THE WIN AND WALK AWAY HAPPY

PIGS GET SLAUGHTERED

DON’T BE GREEDY TRADING IS NOT MY THING, INVESTING IS

 

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