LEH naked jan call, need advise on exiting
- Thread starter newguy05
- Start date
Here is an updated chart to the chart I posted two days ago, I still think holding on would have been the best solution.
LEH one year chart as of December 28, 2007
You are definitely stupid. Playing like swaggering gambler, arrogant about your beliefs on LEH and ignoring great advise by OPTIONCOACH. I have a feeling you will end up with greater losses than you have and all these holidays and wishy wash markets will reduce your bull spread to lot less in few days.
If you are left with any money go to Las vegas and smoke it, its lot more fun.
optioncoach is giving the best advice; this was a huge position to put on on a single security, options-wise.
As for my own earlier advice, forget it. Unfortunately, everything I see is pointing to a very sharp decline at some point soon. Doesn't mean it's going to happen, as I've been wrong often enough to know better. But I don't do anything unless the odds are in my favor, and right now the odds, as I measure it, are not in favor of the longs, in any asset class with maybe one exception. Maybe.
As for my own earlier advice, forget it. Unfortunately, everything I see is pointing to a very sharp decline at some point soon. Doesn't mean it's going to happen, as I've been wrong often enough to know better. But I don't do anything unless the odds are in my favor, and right now the odds, as I measure it, are not in favor of the longs, in any asset class with maybe one exception. Maybe.
I don't know, anytime I've sold options at a loss I've regretted it. I've let a few expire worthless, but that was a decision made when I entered to let them run to the end. If I'm long near month options that are headed south and I still believe the underlying will eventually go my way, I'll roll my near month longs into LEAPS and start shorting higher IV options 1-2 months out against them and I'll keep doing that until the underlying turns my way.
I know this flies in the face of the "cut your loses and move on " philosophy. But I feel option traders have enough tools to trade out of any situation if they work at it.
I know this flies in the face of the "cut your loses and move on " philosophy. But I feel option traders have enough tools to trade out of any situation if they work at it.
If he went in with 5 contracts and LEH showed signs of life I would say let em ride but with 40 contracts and $40k on the line he did the right thing reducing it down to 10 contracts. Even converting to a bull call spread takes further risk of the table even if it does lock in a potential loss. Not the best adjustment overall but reducing hte exposure is the first step when one gets too overzealos nad goes in too big.
This is more a reflection of the way too much size than anything and better to lose a smidgen of the $40k than the whole lot.
"THIS" is one of your pieces of sage advise to get an "expansive" broker...hummmmmm NOT a broker with an outstanding platform/analysis tools for options and unparalleled customer service...AND cheap commissions...
Newguy05 there is a very easy way to clean up this thread...put boost123 on ignore..which is what I'm doing after this post.
THe problem is that simply getting him out of the mess avoids the real lesson that needs to be learned here about too much size and going in without a real understanding of options. I actually did not even analyze the position, all I saw was 40 contracts or $40k on a new first position that was down already 25%. That was enough to know it was time to bail.
If he followed an adjustment blindly he two things would happen. One he would still lose more money and not learn the lesson. Two, he would get out unhurt and possibly with a profit and think that options are easy because you can easily escape a losing position. As I have always said, adjustments still require cooperation from the underlying stock. So basically the person would not learn what they need to and go back again with big size and eventually blow out.
So better to cut and run and learn and then the next time learn the right way to size the position, analyze the risk and understand possible adjustments.
I think criticizing the size of this position misses the point. His $40,000 position might represent less than 1% of his account, which makes it a pretty conservative trade. Let's look at the choices a trader with lot's of $$ can use to trade out of a situation like this. I know many of my trades that I make $ on are losers at some point . I think if you play options that have more than a week or two left to expiration, you will frequently see those positions drop 25-50% below your purchase price. Hell, they do that in 1-2 days. If you buy a call 3 mos out for $400 and it closes at $200 the next day do you sell and take a loss? I wouldn't. The Jan 85 GSF calls I bought for $450 are up 100%, after having been down to $200. My May COP calls are in the $600 after dropping inro the $200.