Cover short X position by buying back my short Jul 200 calls
X sky rockets 20 points off its recent low this morning. I am caught with my proverbial pants down. I vascillate on taking the loss and it only gets worse as the day does on.
I need to write on a white board "I will not chase high premiums... I will not chase premiums..." So many times I get burned badly when I do. Taking the loss, is a major ouch in percentage terms, but a tiny hit in dollar terms. Even with this morning's big move, there is still a high probability that X will not go over 200. However, continuing to hold the position means an outside chance for a game changing loss. As my profile states, living to trade another day is priority one for traders, no matter how convinced he/she might be about the trade eventually turning around. Stubborn traders are often short lived traders, or they are hindsight traders that trade on paper instead of with real money. It is an easy game to buy at the low and sell at the high trading on paper, and reporting trades in hindsight. Not so easy in real life, real time.
Someone remind me (maybe it will be me) of this lesson, the next time I am tempted by a high premium, or what seems like a "mispriced" option.
Positions: long SPY, short RIMM
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