The election trade (Stock could go 43 percent against me and i’d still be making money) worked as perfectly as i’ve imagined it. 70% of short option premium came in just one day after the elections. One lot looks like this:
Per one lot: in three days $435 gained, only $184 premium left to gain.
And here are 4 key reasons any sane person would take those profits:
- There is simple truth with option selling: your gains are limited and losses are unlimited. Therefore when your profits reach over 50% of potential max gains you now have more to lose than to gain.
- If you decide to stay in the trade you expose yourself to unknown event that could spike option prices. Gains will be replaced by unlimited losses – how stupid is that?
- Managing winners by taking profits have been thoroughly studied by Tastytrade ™. Their research shows why it makes total sense to take off winners with 50% max gains reached. With those fast profits you can now open a next trade somewhere else.
- Historically UVXY loses value so damn fast that it is reverse split nearly every year! This reverse split creates stupid new options that are not 1 contract per 100 shares anymore. Rather 1 contract per 20 shares (in case on 5:1 split). Nobody knows anybody who would like to trade those piece of shhhhhhht option contracts. Hence they become completely illiquid and you’ll be stuck! Exposed to all risks, until options finally expire.
And.. I shall not take off this trade!
First of all i’m completely ok with UVXY spiking so i could short more of this P.O.S. ETF.
Secondly http://your.capital monitors position constantly so i can enhance (lower risk, increase gains) in any market situation. You don’t have to limit yourself to mediocre gains with typical risks.
Let the machine do the constant working part and i’ll do whatever-i-shall-fancy part!
Thirdly if your positions are correctly sized (small enough) then you don’t have to take them off because you’ll have enough capital for your next trades.
Hope you all did well with the latest market swings and best of luck!