Friday, June 17, 2016

Weekly: Stop losses lead to frustration

It was a frustrating week. Several stop loss levels got triggered and I took some big losses. A mild recovery later in the week was a small consolation prize for my losing week. Two of my "lucky" stocks for 2016 went bad, as I took big losses in Chipotle and Tesla. Most galling was CMG, had I held to expiration, it would have come out fine. Instead I took big hits on two legs.
Stop losses are a philosophical question for traders. Either a person uses stops or doesn't. If a person uses stops, there are going to be times like this week, when the stops get run and then the stock reverses. It is mostly a matter of when not if. If a trader uses technical support levels, everyone else can see those same chart levels.

The other side is that if a person doesn't use stops a trending move can cause massive damage. The losses can go exponential for those that sell naked options on leverage. In fast markets, margin calls and forced liquidations can and do happen. This too is also a question of when not if. Yes, the odds or a huge trending move are smaller, but when it does happen, it can wipe out a leveraged account.

Here are the trades (c = calls, p = puts, all are third week expiration unless noted, sell means sell-to-open, cover means buy-to-close, number is price per contract):

Mon Cover TSLA Jun 217.5 p 365 -500%
Cover CMG Jun 397.5 p 913 -700%
Cover CMG Jun 395 p 800 -600%
A royal "flush" as I cover three legs for huge losses. The declines in Chipotle run through my stop levels. TSLA doesn't break it, but sold another leg of 217.5 puts so cover a bit early. Time to regroup, try and clear my head after these destabilizing hits. My consolation prize is at least I wasn't short LNKD calls (LinkedIn went up about 50% today and anyone short calls was obliterated).

Tue Cover TSLA JunW5 217.5 p 675 about a 400% loss

Sell CMG Jun 365 p 55 Chipotle closes higher after being down 10 points

Wed Sell IWM Jul 121 c 23
Sell SPY Jul 216 c 28

Thu Cover VRX Jun 22.5 p 56 about a 45% loss
Sell GLD strangle 115 p /145 c for 42
Sell Jul GLD 115 p 23
Sell Jul GLD 145 c 19

Sell TLT strangle 127 p /150 c for 36
Sell TLT Jul 127 p 16
Sell TLT Jul 150 c 20

Sell SPY Jul 192 p 82 add delta as market rallies
Sell IWM Jul 101 p 30

The monthly update will come tomorrow (Sat).

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