Saturday, April 09, 2016

Weekly: Lessons from golf

I've been watching some of the Masters golf tournament. I saw Phil Mickelson miss a birdie put from about 5 feet, push it past, and miss again. Three putts from five feet by a hall of famer. Then there was Ernie Els carding a nine on the first hole. Six putts from another hall of famer. What does that teach me? That mistakes happen, that even the best of the best sometimes make unforced errors.

I've written before about Bubba Watson. How he used to get extremely upset after shanking a drive or missing a putt. So upset that he would go on to make some more unforced errors due to his emotional state. Bubba barely made the cut and starts ten shots back on Saturday.

In trading, emotional trading can show up as "revenge trading." There is also stubborness. There is "this time I will not follow my rules." All of these are often emotional reactions to mistakes.

For novices, one of the most common emotional mistakes is the unwillingness to take a loss. They keep adding capital, adding risk so their clunker trade turns green. Sometimes it works. A small percentage of the time, it completely blows up and the novice loses their account. Rule #1: live to trade another day. A novice will never get to become experienced if he/she bets the farm all the time. Eventually, luck runs out, or a bad streak comes.

Okay enough chit-chat. This week I continue to focus mostly on TSLA and VRX. I take a new long position in EW Edward Life Sciences. I try to get STZ Constellation Brands, but my order at the mid never fills. MON Monsanto earnings were in line so I mange that position back closer to delta neutral.

Here are the trades (c = calls, p = puts, weeklies denoted by W suffix, W1 is week1, sell means sell-to-open, cover means buy-to-close, number is price per contract).
Mon Sell EW Apr 95 p 42 New long position in Edward Life Sciences. EW gaps higher on drug news.

Sell TSLA AprW2 220 p 58 Rebalance
Sell TSLA Apr 210 p 72
Sell TSLA Apr 220 p 105

Sell MCD May 115 p 48
Sell FB May 90 p 48
TSLA gaps lower after hours on news of production shortfalls and the exit of the CIO.

Tue Sell TSLA AprW2 230 p 74
Telsa briefly goes green despite the news.

Sell TSLA AprW4 200 p 58
Sell TSLA Apr 227.5 p 177

Sell TSLA AprW1 240 p 130
Cover TSLA Apr 260 c 570 about a 600% loss

Another day of wide swings in Tesla with a morning low at 240 and now 255. I cover, because the stock is up up on a big down market day, in the face of what many see as bad news, and a lot more short sellers possibly doubling down on recent losses. Well, minutes after I cover, TSLA fades back below 254, so maybe it was stop loss orders being taken out. I certainly feel stupid when these things happen.

Wed The Telsa rally rolls on, and I rebalance again.
Sell TSLA AprW4 227.5 p 141
Sell MON May 75 p 42 Monsanto earnings in-line.
Sell MON May 97.5 c 36
Sell TSLA Apr 235 p 104
Sell VRX Apr 25 p 26

Cover TSLA AprW1 207.5 p 03
Cover TSLA AprW1 220 p 04

Thu Sell CMG Apr 485 p 55
Cover CMG Apr 550 c 05 95% gain, free up buying power
I make several more Telsa trades, rebalancing back closer to delta neutral as it finally seems to dropping.

Sell TSLA Apr 290 c 55
Cover TSLA AprW2 240 p 20 about a 80% profit
Cover TSLA Apr 227.5 p 85 about a 50% profit
Sell TSLA AprW4 305 c 45

Fri Sell MON May 80 p 80
Sell FB May 130 c 51

Sell TSLA AprW4 280 c 106
Sell TSLA Apr 270 c 63

/edit to add: Wow a Brit, Danny Willett wins the Masters golf tournament. Jordan Spieth was on top of the world, with a five shot lead after the ninth hole, cruising to what looked to be a coronation. Then bogey, bogey, quadruple bogey, and in thirty minutes the lead was gone. Trading can be like that too, going from feeling nearly invincible, then boom, a stumble, a gap, and then its all gone, deep into the red, in a very short time period.

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