let say you buy 5 month atm option
but right after you buy, it goes 3% against you in few hours
what do you usually do?
cut loss right away?
or hodl and pray it comes back?
something else?
option have very high leverage so 3% in single day against your direction is enough to make it -30% -50% even for several months long options
if you get caught on the wrong side right at the start, how long do you usually wait to see how it plays out?
was wondering what your strategies are when you get caught on the wrong side of market
Posted by shitdealonly
4 Comments
I end it immediately if it is a large enough hit.
Unless I knew when I made my play it had a risk of volatility OR If I knew the premium for the option was going to take time to offset I’ll let it bleed on me depending on the overall plan.
Five months option I intended to make money on is -3% and hits me with like -30% overall option. I’ll let it bleed. But I’m establishing a cutoff right now. In my head not knowing the stock or the overall situation I’d say 55/60% loss. Obviously the first move was not in my favor but I liked this play for more than just eh overall position. I believed it would climb. I’m going to give it the chance to do so.
I’m definitely ending it before the theta ruins me and makes it a complete uphill climb, though.
Beginner here myself but I’m thinking this would depend on what’s causing the unfavorable 3% swing, how solid the underlying stock is, the longer term trends of the stock and your thought process at the time of entering the trade. I guess, it would be helpful to know your thought process behind a 5 month expiry ATM option. In my case, if I’m buying something like that, I’d have a fair degree of patience w.r.t. holding the position through short term losses (if the other parameters for my trade have remained relatively unchanged). Also, the delta of your previously ATM option should have fallen with the unfavorable 3% move, so it should typically react slower to further down moves. Not sure if this helps, just some of my learnings.
Woah, woah, woah, WOAH! Let’s slow down with all these percentages and numbers. If you suck at direction just say that.
It’s ok you might want to look at a diagonal spreads to get some theta back. You’re too jumpy (definitely a word) to make decisions based on hours, when you got 5 months time.
Also, if you guys were listening to my utility reply the other day, this won’t be happening. I would go with theta strategies until your setups are better.
Also, you have a nerve talking about risk with an ATM option.
Buy 0dte you don’t have this kind of worry of what to do, if stock is down 3% your 0dte will be zero