Panic vs Profit

Over the past 30 days I have cost myself some hefty profit, probably 3-4% of my account value by selling out of positions when prices fell, or conversely trying to increase profits by rolling my option contracts.

For what I am trying to do, and the size of my account, trading out of a position early is usually costly in terms of commission and spreads. After reviewing what I have done over the last several weeks, I believe that in almost all cases it would be better to wait until option expiration before I make any changes.

My investment strategy is to try to capture what I believe is excessive time premium in the option prices. This leads me to trading quite volatile stocks. I have to remember this and just sit on my hands when I get the urge to bail out on something. What looks like crap this week could be smelling like roses next week. I do need to review and make sure there is no significant change in the company’s prospects, but the plan is to stand pat until option expiration.

Current case, I have a covered call position in MED. It has been falling for the last few days. (Jeez, just checked it again, down some more!)  However, I have sold a March option contract on the stock, so selling out now would just lock in a loss, while I have 40+ days for a different outcome.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: