Saturday, November 14, 2015

Lessons learnt from itchy fingers

As you may know i sell options as a means of generating some income, and i made just another mistake in the month of November.

I had a WETF open put position expiring in Dec with strike at 14.75, which is sitting for me a nice profit.

Since we are in the month of November, i thought it would be a good time to close off the position as it was way out of the money (WETF was at 20.75), and i can sell another put option nearer to the underlying's price to expire in the same month, and earn more.

Unfortunately, i closed off my position at USD 265.19, and i subsequently sold options for USD 209.83 (at strike of 16.75)

Now, this is a lose-lose situation for me - i lost USD54 on this trade simply by having itchy fingers. If i didn't do anything, the option would have just expired in December (presumably) and i would be better off by that 54 bucks.

Also, with my new position, the strike is actually higher at 16.75 (compared to 14.75). I run a higher risk of being exercised should the underlying drop in terms of price.

What can i learn from this?

Put in a limit order when closing off a position (i closed at market thinking that the price shouldn't fluctuate that much), or if the potential gains are not too much, don't have itchy fingers!

No comments:

Post a Comment