Option Millionaires

[Ticalc2007]

Hello, JB,

First off, I just wanted to apologize for my over reaction to the critical reception of my attempt at humor earlier, in reference to my CALL position. With what I know (granted, not much, but still learning), I thought CALL looked good at the $18.51 entry I chose, and understood the risk I was taking in getting into any position so heavily, when it comes to straight-up stock holdings.

The apparent "Tic" Rule, that is, whatever I get into, goes down, took hold immediately, and it is frustrating to see the same thing over and over again, as I'm sure everyone can attest to. Then, on Wednesday, when the "research note" or whatever you'd like to call it came out, and I was unable to exit my position until lunchtime as I can't access my account, reliably, from my work location, I no longer tried to, even in humor, place the blame on anyone but myself.

I am a risk-taker, by nature, and am holding positions, on margin, as to utilize my account to its fullest potential, profit wise, and on my very first trade of the year, encountered the increased downside, in a significant way. $1000 down the drain, not because I took a stock somebody liked, and made it my own, but because I was stubborn, and could easily have taken the $100-200 loss with minimal damage, had I set some sort of money management/stop loss guidelines before getting back into the market. My original plan was to play a few options with a very small account, and make short term plays on stocks with decent returns on covered calls, to help reduce downside.

By deviating from that initial plan, I had cost myself 15% in a week. I got too caught up in where the stock could go in the short term, to the upside, that I became oblivious to the downside potential, and the nature of uncertainty surrounding the market as a whole. Sometimes, it is difficult to be happy with a small gain, or even taking a small, manageable loss, when those lofty potentials become intertwined, and eventually, indistinguishable from one's expectations. I feel that I have learned from my mistakes, to some extent, and while concrete numbers are hard to decide upon, am hoping that I can be happy with any gain, however small it is, that I am given in future trades.

My first opportunity to test this appreciation came today, while at work. On Wednesday, shortly after closing my CALL position, I decided to get into BBY, another stock I have been following for a while. With 7 days to expiration on the January calls, I felt comfortable with opening a position, and decided to get in at $11.60. In accordance with my initial plan (even if covered calls shouldn't be used in this manner), I decided to sell the Jan '13 $12 calls at $0.45, bringing my B.E. to $11.15, ignoring commissions.

A 3.4% move to the upside by expiration, could yield a 7.3% gain, while protecting me from up to a 3.9% move down. Even if the option strike wasn't hit, with bad holidays sales #'s expected, the downside seemed manageable, for my risk/reward tolerance, so I made my move, making up my own mind on a trade. While I know, when #'s are going to be released, a few percentage points could make a huge difference, between a 5% gain and a 5% loss, I liked the trade, based on my knowledge, and followed through with the type of trade I was planning to use from the beginning.

And, as we all know, sure, I could have made a ton of money playing calls, or even holding the stock without the covered calls, but when the #'s came out, better than expected, and it was at $13+ to open the day, I was happy with the position I found myself in. It seems, for now, I have learned to accept what does come my way, and not become fixated on what could have been. For an added sense of security, regarding the unknown future of any stock, I even chose to close out the position at $11.95, rather than wait for expiration to sell at the associated $12 strike. Sure, at $13.60 during lunch, I could have bought the short call position back, and let the shares ride hoping for more, but with the week I had, I was more than happy to make back over $430 of my initial CALL losses, and be on my way.

Sorry for such a long message, I just felt like posting as I continue in the learning process, so that, perhaps, I may look back in a time of need, and take some words of wisdom/advice from my previous experiences, rather than relying solely on the ever fading memories, that become less and less reliable as the weeks pass us by. Hopefully, I can slowly recover my losses from CALL, and begin to make some small gains with which to make some straight option plays. Best of luck to everyone.