#1 First sale gone sour!!

by admin on April 18, 2012

I just bought back my first sale for $587.50 at approximately 10am CT (11.pm SGT). :(

It was a loss of $337.50 ($587.50 – $250 [collected initially when I sold the put options]).

Emotion in play

When the market just started to open, I hesitated in buying back (The price was $512.50 during the open), even though I set my *mental target stop loss at $500 (This will equate to a loss of $250 which is 100% of what I had collected).
*Note: I did not enter a stop loss order when I entered my trade on 3 Apr 2012 as was taught by James Cordier and Michael Gross from their “The Complete Guide to Option Selling” due to the risk of being executed unexpectedly.
During that time I was hesitating because:
1) My mind was thinking that since the July future price is still hovering around $6 ($6 was considered a support line) and it had not broken this support, the price could still continue to hover around $6 or even rebound.
2) The more I hesitated, the higher the option price went, $512.50 -> $550 -> $575 ………. The more confused I got πŸ˜›

After a while when the prices reached $525, I said to myself, that’s it, I will buy it back at $500.
The order never got filled and the price continue to shoot higher and higher (this being in the span of only a few seconds).

Finally, I told myself I will just cut my loss immediately and no more otherwise.
That is how I entered the order at $587.50.

Looking back and the lessons learnt

1) I felt that I had entered this corn sale too hastily on 3 Apr 2012, I should have set a comfortable price and wait for the sale to be executed.
2) Once the stop loss value was reached, there should be no hesitation and should just execute a market order.

I believe this is an ongoing learning process and I will update as I move along πŸ˜€

As for now, I shall wait for other signal before entering another trade as I felt the July corn prices to be in a bearish mood as the crop progress is pretty good as compared to past 5 years.
(The actual report can be found in USDA Crop Progress Report)

Any comments on my lesson learnt? Do you think that I should not have done certain things? Please feel free to leave your comments πŸ˜€

Cheers
Charles

Disclaimer:Β The author is not a licensed financial advisor and the information is provided for educational and information purposes only.
Trading commodity futures and options have large potential rewards but also contains a high level of risk and is not suitable for all investors.
Only risk capital should be used when trading futures or options.
None of the information provided constitutes a solicitation of or a recommendation to buy or sell any futures or options contracts.
Please seek the advice of a professional financial advisor before investing your money in any financial instrument.

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