I should really stick to basic index fund investing until my competency in options surpasses that of a monkey… I bought a couple NVDA long calls Dec/20 @1050 ($229.50) today and was quickly taken to the woodshed (-13%). I typically cut bait and move on around 10% loss, however today I let my emotions continue to send me into the red. How do you stick to your risk tolerance plan when having a long term bullish bias?
Posted by ButteryLongStonker
8 Comments
Beliefs don’t trump fundamentals.
Lol if you cant stomach a 13% swing on atm options then it aint the security for you
I’m down 30% on a call and sleep like a king
Many people here will give you the very good advice of setting your entry and exit conditions before you enter the position. Think of it as part of your underlying stock research. You wouldn’t make a decision on buying a stock after looking at only half of the balance sheet; don’t get into an options position if you’ve only considered some of the possible outcomes of the position. Remember that your long term outlook on the underlying means less and less as expiration approaches, especially with long call positions. Time is working against you when you’re buying options…holding is equivalent to continuing to accept an accelerating loss of extrinsic value, regardless of the underlying price movement. The longer you hold, the faster extrinsic value vanishes, and the more you’re depending on intrinsic value to “save your position” and net you a gain. A long option is basically a bucket with a hole in the bottom that gets bigger the longer you hang on to it. Of course, if the underlying is on a tear in the right direction it can fill the bucket, so to speak, faster than the bucket can empty, but the closer you get to expiration the more people there are standing around with empty buckets.
You have to understand if your idea was actually invalidated or not. If you can’t tell, well maybe it’s not for you. Options, being inherently more risky than shares, require a much tighter understanding of market movements. The answer to your question is, “is the expected/intended move not only possible, but still a realistic scenario? or am I deluding myself?” Often having an understanding of time frames greater than the movement against you will give you greater confidence over the long term. For example if it has a -5% day, what does weekly look like? If you had a better entry, would it still be a valid trade?
Why are you even looking at a call expiring 6 months from now much less acting on it?
7 months left still in the money and you’re sad? Don’t buy things to buy them. Have an actual reason. Emotions won’t play a roll.
To me going long with leverage on a stock that’s up 140% in 6 months defies all risk tolerance. but i’ve been burnt going short also so what do I know.