No, because it would leave the long put uncovered at something approaching -100D. The assignment results in long shares and the remaining long put = synthetic long call from the remaining put's strike.
About to blow up my account...help?
- Thread starter Julz
- Start date
No, because it would leave the long put uncovered at something approaching -100D. The assignment results in long shares and the remaining long put = synthetic long call from the remaining put's strike.
Analogous to discount arbitrage. Often these deep ITM spreads are trading just above intrinsic on the offer.
One of the worst things about being crushed out of a position, is that typically the market soon adds insult to injury with a violent reversal that would have drastically reduced your losses or may have even moved you into a profit.
As painful as an account blow up can be, it also provides you with a great learning opportunity. It would be a mistake to try to blot the experience out your memory and move on. Instead, while everything is still fresh on your mind, chronicle the entire trade from start to finish, noting your reasoning and thoughts for your actions every step of the way. Once completed, write up a solution journal going back through those steps noting what actions you should have taken as the trade progressed with the info that was available at that time. Look for any insight or signs that were missed that could have helped you realize you were on the wrong side of the trade.
Also important, you want to go over your trade management to see where there were clear signs you should have pulled the plug much earlier. You can be fast and loose in a small account, but never in a big account that you don't want to lose. Your trading system has to include a fail-safe that will end a trade at a specified percent without hesitation. If you give the market an opportunity to eat up your account- it's not a question of if it will happen, but when.
You should continue to trade on a sim account to work on your trading corrections while you're taking a break from live.
While the losses are painful, the silver lining is if you can resolve your trading issues and learn from your mistakes, you can make it back fairly quickly as well. Plus, you now have all the tax write off deductions you need to apply to any future gains for a good while.
Best of luck, Julz.
Spot on. I recently blew up an account selling options at the worst possible time- the day before the most massive short-squeeze I've ever seen (TLRY, $130->$300!!). It also added insult to injury (as soulfire said) by coming back down to reality the same weej. I think I learned some valuable lessons, and I am embracing the pain to allow these lessons to truly sink in:
1) Don't deviate from your strategy unless presented with a super high-probability trade in front of you (was doing great trading NQ futures + directional options prior to this)
2) Don't sell options on high volatility stocks
3) Respect stops!!!
4) Don't trade out of "boredom". Think of an equity curve as a flight- you pretty much want to be smooth sailing. There's actually A LOT that goes behind the stability that we experience in a flight, so don't confuse that with inaction or "missing out" on what the other possibilities are (i.e. a bumpy ride that could lead to disaster or at least serious discomfort).
1) and 4) are related. The ability to recall this type of trade and the resulting fallout will hopefully truly change my mindset and behavior going forward.
The idea behind selling premium is "selling premium". High volatility stocks are best because you collect a decent premium to offset the risk.
Stops are too impractical with options. The preferred method is buying a long option to cap the maximum loss.
I suspect a SHIT TON of contracts involved, picking up pennies in front of a steam roller and tripped in the process getting squashed.