Today's topic is about how to cut loss when at a extremely under water position. I did not do quite well to cut my loss. I could do better to minimize my loss. I want to write something about my premature reflection here.
The US market has been down consecutively for four days from 1345 to 1284 in June. No mercy, just bloody drop, usually happened during the last hour of each trading section. Please look at the above chart.
Lucky that, this morning the SP index had a gap up with SPY=129.70, which saved my loss a lot and gave a good beginning. As seen in the above chart, I closed my spy calls in three positions today to cut my loss. At the beginning, I want to see the index gives a nice bounce today, maybe to 1300. I also know that 1295-1298 is a reasonable target to get for today.
SPY gap up and faded away for the first 5 bars. I am very afraid at the 4th bar, so I sold 7 calls here for 1.08. Notice the open price for the call is 1.15 and yesterday close is 1.00. Now I think this is a bad move, as it is anticipated that there is some selling if gapping up. As long as it holds and bounces from 20ma in 5m chart, I do not need to cut loss here. Even it is better to cut right at the open.
SPY reached the first intraday high 129.99 around 10:45AM. Even for now, I think I will not close it at this time. I would like to see another push up. But imagine this scenario, if I bought the option at the Monday close, then the time spy=129.99 which gives the call price to be 1.33 will be the best time to take profit today. It is a 33 percent gain. Since I am far under water at spy=129.99, I am hesitate to do that.
The mid of today from 11:30Am to 1:00Pm is one of the most painful period I experienced, as I monitored the index closely to see the choppy up and down. I almost lost my patience. Without my friend's insistence, I believe I would close all my position here to cut loss.
It was nice that the painful period went away temporarily and spy gradually moved higher to touch 130.07 again. Based on the chart, I sensed that the daily high should be close to 130.10. This is the best best time to cut loss, knowing that I can always buy back at the lower price. I only sold 3 june 133 call here for 0.47. Too little!!!! Need to sell them all here.
Finally the market tanking, I stopped out the rest 15 June 130 call at 1.11. Do some math, 1.31-1.11=0.2, I lost 0.2 dollar more by cutting off late.
Lesson to learn: When cut loss under the extremly loss situation, do not set stop. But instead, sell all the position at the highest ( most confortable zone) point. Do not regret if the price will go higher.
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