I had a 121 put butterfly on and the stock took a dump and I got assigned the short puts early and what was supposed to be a loss capped at ~3% of my assets turned into a loss of about 30% of my assets. I'm pretty much a wreck right now. Any advice/tips etc. would be greatly appreciated right now.
How to recover from a huge loss?
- Thread starter kj5159
- Start date
I have lost over 70% of my account on one trade. About $70000, and all my net worth was in the account. I stopped trading, became depressed for a week, near suicidal which isn't good when you have an apartment on the 8th floor.
My advice, stop trading until you feel happy and stable again. You have to move on and try to focus on the good things in your life. If you are supposed to make it in trading you will come back and view it as trading tuition.
Try to learn something from the experience, at least you will get something out of it.
My advice, stop trading until you feel happy and stable again. You have to move on and try to focus on the good things in your life. If you are supposed to make it in trading you will come back and view it as trading tuition.
Try to learn something from the experience, at least you will get something out of it.
K
krugman25
I am genuinely sorry to hear you took such a large loss. When you are trading options you always need to look at the notional value of your option positions. It is easy to look at the debits/credits of the options you are putting on and not realize how much notional value exposure you are carrying with all of those positions.
To keep it from happening again you need to not over-leverage and also stay diversified. If you are willing to lever 2x max (notional of option positions vs. portfolio equity), then stick to that. And then spread that 2x out over many positions and strategies. Maybe have positions in 8 different underlying using no more than 0.25x leverage of your portfolio for each, and then diversify through strategies as well by having some spreads, butterfly's, ICs, etc. If you do that you will not have 30% of your account wiped out, not even close, even on your worst day.
As far as crawling back to even, if it were me I would get back on the horse again with my new rules (the rules to keep you from over-risking like this again), and start depositing money in from my regular income to get back to even. Consider it your new lease on life and be glad you didn't blow an amount much larger than 30%.
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For an options trade you can cap your risk so there's no excuse for a 3% loss to blow up into a 30% loss. I'm not here to chastise you for this but just know that your primary failure wasn't your trade (whatever it was), it was not paying attention to maximum loss and over-leveraging. When placing your trade you need to be absolutely sure of your maximum loss and EXPECT it.
Knowing this the best advice you can get is don't trade with what you can't lose. This is a gambling bankroll, you are going to lose. The only way you "make it" is letting the law of averages work for you by not risking half your roll per trade.
I personally follow a risk management style that requires me to liquidate and pull out for 30 full days (from hitting my risk limit) if my total loss in any calendar month exceeds 10%. This gives me time to be out of the market, study my loss(es) that cost me 10%, and come back to the market armed with more knowledge. For example - I lost around 15% of my account on one trade in futures. I pulled out for a month and learned I was undercapitalized/overleveraged, and didn't fully understand the market. For a loss of 30% I'd probably pull out for a quarter (or close to it) and use that time to re-fund my account up to breakeven while still watching charts and learning every day.
Bummer. I lost about 30% once, about 10 years ago. Just stick with it. If you can stick with it, and at least make a few profits in future years, you will essentially get it back in taxes. You can deduct $3k per year and also net the remainder losses against gains. This is actually a great trading lesson! But please, just do not go tilt and think you can get it back all at once. -30% is a hell of a lot "better" than -70%! Good luck! 
Thanks, hahahaBummer. I lost about 30% once, about 10 years ago. Just stick with it. If you can stick with it, and at least make a few profits in future years, you will essentially get it back in taxes. You can deduct $3k per year and also net the remainder losses against gains. This is actually a great trading lesson! But please, just do not go tilt and think you can get it back all at once. -30% is a hell of a lot "better" than -70%! Good luck!
Unfortunately for you, this is one of those "horse is already out of the barn" dealies.
There are 4 possible outcomes for a trade....
Small gain
Small loss
Large gain
Large loss
The only one you can control is "large loss"... don't allow it to happen! Don't give it any but the most remote chance of it happening (can't completely protect from the black swan out-of-the-blue external event). That is... when you do a "go big trade"... ALWAYS place a hard stop in case the market goes against you. 1%, 2%, 4%.... don't make a habit of risking more than than on any one play.... as you could be wrong... and you might be wrong, BIG.
As far as "recovering from a large loss"... better to grind your way back than try to make it all back on one trade (you might be wrong about that one too).
Over your trading career, the market is going to "take a run at you"... where you could lose all you've gained and more... half a dozen times or so.
Don't allow yourself to be a chump.
There are 4 possible outcomes for a trade....
Small gain
Small loss
Large gain
Large loss
The only one you can control is "large loss"... don't allow it to happen! Don't give it any but the most remote chance of it happening (can't completely protect from the black swan out-of-the-blue external event). That is... when you do a "go big trade"... ALWAYS place a hard stop in case the market goes against you. 1%, 2%, 4%.... don't make a habit of risking more than than on any one play.... as you could be wrong... and you might be wrong, BIG.
As far as "recovering from a large loss"... better to grind your way back than try to make it all back on one trade (you might be wrong about that one too).
Over your trading career, the market is going to "take a run at you"... where you could lose all you've gained and more... half a dozen times or so.
Don't allow yourself to be a chump.
not sure how your butterfly could turn into an uncapped loss, could you elaborate?
Not sure about your trading style and personal info, but been through it and understand how you feel. My short straddles/strangles also brought me down high single digit this month. However, 30% isn't end of world and should stick the gun although will take time.
I suggest taking some time off trading and reading a few options and risk mgmt books (message me if you want some, others pls don't). remind yourself how many great traders have had their fair share of down time. take this time to ask yourself key questions, like what is it you are doing, are you trying to collect leveraged risk premiums by short vol, do you know the single names well to avoid their idiosyncratic risks or should you move to index vol, etc
Not sure about your trading style and personal info, but been through it and understand how you feel. My short straddles/strangles also brought me down high single digit this month. However, 30% isn't end of world and should stick the gun although will take time.
I suggest taking some time off trading and reading a few options and risk mgmt books (message me if you want some, others pls don't). remind yourself how many great traders have had their fair share of down time. take this time to ask yourself key questions, like what is it you are doing, are you trying to collect leveraged risk premiums by short vol, do you know the single names well to avoid their idiosyncratic risks or should you move to index vol, etc
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You independent and not supporting anyone (no family, no kids, not a caregiver) ?
You were trading with money you could afford to lose ?
wrbtrader
How did you lose 30percent just because you were assigned? Why didn’t you exercise the other two legs the next day?