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The Epic Conclusion: Why August Was The Worst Trading Month Of My Life

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September 29, 2011 – Comments (1) | RELATED TICKERS: SPY

When you get hands wrapped around the exit latch, and can rid yourself of a position in the market that is a like a cancer to your portfolio, why doesn't one do it? I've pondered this question quite a bit. Probably because on August 15th, when the S&P was sitting at 1204, I had gone from being on my knees in prayer needing divine intervention in this mess of a position that I had, to all of a sudden being in the driver's seat on these calls, and that one more surge higher would not only rescue me from my current plight, but would probably result in greater gains than anything I had ever experienced before considering my exposure in those calls.

Read Part 1 from the Worst Trading Month of My Life.

Read Part 2 from the Worst Trading Month of My Life.

Read Part 3 from the Worst Trading Month of My Life.

Those gains would be short lived, as I would quickly experience a "What Have I Done?" moment or two over the course of the next four days only to see the S&P push back down to the 1122 level - right at recent lows. Those gains quickly evaporated as I saw chunks of capital evaporate anywhere from 10% up 30% on a daily basis. Somehow I was getting used to this nightmare. In fact, on August 19th, at those lows, I put in another order that increased my exposure in those SPY calls by another 8% getting in at $0.60 and averaging my option calls down to $0.92/contract with a 57% exposure.

My biggest fear was that we got the dead-cat bounce and it was done and over with, but during that bounce I saw little in the way of short covering, which told me that no one was booking gains and looking to reload at higher prices. Instead it seemed to me like the shorts were still holding for the next leg down in equities. Now that we were testing previous support, there was a strong chance we would bounce again in the coming days. If not, a break of those lows, from August 9th, would definitely force me out of the calls at a loss far greater than anything I had ever taken on before.

On August 22nd, the market would play out my biased belief that the market would bounce and did so in dramatic fashion. As the calls rose from $0.60 up to $1.00, followed by $1.33, up the $1.80's and on Tuesday, August 30th, I would sell 1/3 of my $124's at $1.99. from a average buy of $0.92 for a 116% gain. A huge burden was lifted off of my shoulders, but I was by no means out of the woods.

I was planning a Labor weekend trip from my home in Florida up to South Carolina to visit my brother and his family, and my desire would be to liquidate those $124's before that trip. All the $136's were basically worthless, and would cost more in commissions to liquidate than to just let them expire worthless - so they were off the radar.

My goal was to cash out these $124's. Wednesday would have been the ideal time to get out, as I was seeing a descent profit in those remainingcalls, (but nowhere near the amount I would have preferred for the amount of risk that I was taking on). But like it had been back on the 15th of the month, I believed that the next morning would mark the opportunity to get out of those calls on any surge higher.

But Thursday was also when I would be traveling up to South Carolina.

I guess I owe Steve Jobs a debt of gratitude to allow for technology that gives us the ability to close out a highly volatile trade (filled with stress and emotion) while traveling at high-speeds on the interstate. Because that is just what I did, when Rick Santelli gave us the batch of 10am economic numbers on my XM radio. I managed to get out of those SPY calls - and yes I mean all of those $124's, on that initial pop which likewise was also at $1.99 - just like the previous 1/3 that I had gotten out of on Tuesday.

Funny thing is, I doubted myself for getting out when I did, because, though I managed to come away from this tragic episode of my trading career with an actual profit on the lump sum of calls that I had purchased; I thought I actually might regret later having got out when I did, should the market rally higher throughout the day.

To say the least it didn't, and if one could ever have been blessed enough to have gotten out at near the most optimal of prices, I was that person. Did I deserve to? No. I deserved to have lost everything over the course of the past month, and though, I came away better off from a profit standpoint (even with the gross error in those $136's, the $124's made up for it and more so), I wouldn't say it made me a better trader.

In fact throughout this entire month of September I have questioned a lot of my previous beliefs when it comes to trading and my goal over the course of the next days, weeks, and months, is to bring forth the lessons learned, from the Month of Hell, and what I have changed since then, including my beliefs, strategies, and how I manage my trades going forward. Some of my revelations will come across as shocking to you, while for others you'll be in complete agreement. Either way, despite my years of success as a professional trader, I am always trying to get better, and in the process, use SharePlanner to make your trading that much better too.

Was I profitable in the end? Yes.

But in the end, was it worth it? No.

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1 Comments – Post Your Own

#1) On October 02, 2011 at 4:34 AM, walt373 (99.79) wrote:

Excellent story. I can't imagine what it feels like to know over 50% of your portfolio might evaporate in the next few days. Hopefully I will never be in that position. Glad you made it out OK.

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