Fugu628 1 Report post Posted August 19, 2015 Hello friends! The screenshot shows my current position on NFLX. I started the Sell 100 Call and 67 Put strangle when NFLX had its first spike after earning back in April. Then after 7-1 Split in July suffered huge paper loss including a margin call. I added some new positions trying to hedge but I know it's still a dangerous situation. Any suggestions would be appreciated about what's the best to do now. I wanted to release the capitals to do SO with Kim but of course hate to take the loss - as I have been making steady income without one single loss by doing RUT iron condor for 7 months as a self learned newbie and this stupid NFLX adventure erased all my gains. Share this post Link to post Share on other sites
Kim 7,512 Report post Posted August 19, 2015 First of all, the key to successful trading is risk management and position sizing. Selling naked options on a stock like NFLX is never a good idea in my opinion. If you do it, you should never allow the short calls go ITM. Of course when you do it before earnings, the stock can gap, and the only risk management is proper position sizing. What's done is done, and hopefully we all can learn from our mistakes. The question is if you want to own this position now? The market doesn't really care that you have a loss on it. The stock can still go higher and the loss will become wider. And believe me, a momentum stock like NFLX, can go MUCH higher. One way to reduce the loss is start selling shorter term put spreads. But this will help only if the stock remains relatively stable. if it continues sharply higher, the loss will still become wider. Sorry if I don't have good news. Sometimes the best thing is just cut the loss and look at it as an expensive lesson. Share this post Link to post Share on other sites
Fugu628 1 Report post Posted August 19, 2015 Kim, again, thanks! Now I understand everything you mentioned from my SO personal experiences. I have the highest respect towards you and highly value your opinion based on my 10 day free trial experience here with SO and decided to continue for sure. Don't hesitate to give me your honest thoughts as I will be the ultimate responsible person for any action I decide to take. So, if you were in my shoes now you would definitely close all open positions and restart without any reservations for possible reverse? You believe that's the best thing to do? No I don't want to own the stock now, not at this price. I started it as I misunderstood that margin calls won't happen before option expiration date. Share this post Link to post Share on other sites
Kim 7,512 Report post Posted August 19, 2015 Please understand that I need to be very careful not to give personal investment advise. I'm probably not the right person to ask regarding such positions anyway because I trade non-directionally and don't really care about stock valuations. However, based on my experience from the times when I was trading stocks, stocks like NFLX are completely unpredictable. You might think valuation is crazy, but they keep going up. Of course the moment you cover the short, the stock starts to go down, and you think the market has something personal against you.. This is exactly why I stopped even trying to predict stock prices and valuations. Not syaing it cannot work, a lot of people are doing it successfully - just not my cup of tea. Share this post Link to post Share on other sites
Fugu628 1 Report post Posted August 19, 2015 Kim, really appreciate it!!! Share this post Link to post Share on other sites
luxmon 228 Report post Posted August 19, 2015 Hi Fugu628, I've been in similar situations, being buried by a trade that went poorly and trying to dig your way out. It's a mental tug of war inside, you want to make your money back and make the loss sting less but at the same time if you sit back and look at it as a fresh trade, would you put it on now? Most of the time I answer no to that. If you take it off, you will breath a sigh of relief and a big weight will be off your shoulder. You can then focus your energy on new opportunities. Tim 1 Kim reacted to this Share this post Link to post Share on other sites
guggsi 2 Report post Posted August 19, 2015 Fugu628, the advise i can give you is to close everything, take the loss as an expensive, but very important lesson. and forget about NFLX, stop looking at it. I am saying this, because me too i made many times the mistake to hold on to losing positions, try to "massage" it here and there, only to have losses which i never thought possible. Hoping that the position would rectify itself and literally going through a nightmare. to trade successfully you need a clear mind and positions sized such that the maximum loss per position, but also for the whole portfolio is bearable. At this moment you can still decide yourself if to close or not, if NFLX goes higher you will be forced to close, and the damage will be bigger. Not only, if you get margined out you portfolio will be destroyed and you won't have enough for new investments. I know that psychologically its a hard blow. but i also know that once you are out, the pain is lesser and lesser. and with time you can get back at trading NFLX, but this time with spreads (defined risk) and smaller. earlier this year i had a short out spread on UVXY. It went into the money and i took delivery for the short put. I wanted to sell it at the first spike......which never came. it was a small position which became a huge loss. The more it dropped, the more i hoped for a spike and my mind got completely clouded. I lost huge money there...but i learned the lesson. 1 Kim reacted to this Share this post Link to post Share on other sites
Fugu628 1 Report post Posted August 19, 2015 Tim and Guggsi, I can't say enough how much I appreciate you! I feel lucky that I found SO and Kim, and now you guys, when I was searching solutions for my problems. I guess I will take your advices and be forward looking again, guys, thank you, for sharing and helping. Best!! 1 luxmon reacted to this Share this post Link to post Share on other sites
Edwin 63 Report post Posted August 20, 2015 If you're still in your trade, you should hopefully getting back some of your losses with NFLX down more than 8 right now. Share this post Link to post Share on other sites
Fugu628 1 Report post Posted August 20, 2015 If you're still in your trade, you should hopefully getting back some of your losses with NFLX down more than 8 right now. Yeah, mental battle again now Share this post Link to post Share on other sites
Edwin 63 Report post Posted August 20, 2015 You could scale out of your calls if it keeps going down, and add short puts on down days. Or just get out of the trade. Share this post Link to post Share on other sites
TDM 33 Report post Posted August 20, 2015 There have been a couple times when I've sat in a trade for way too long, with many moving pieces, praying the market does what I want. Then one day, I looked at the current P&L chart of my trade. I realized that my best case on the trade was about a 10% profit on my max risk, and because of the negative negative gamma, the max loss was a real possibility without much of an exit opportunity. I compared this to some other basic strategies, like an SPX calendar. I realized that I had a host of other trades I could use the capital for which would be more in line with my risk, higher return, and let me sleep at night. I sold the position and haven't looked back. Yes, the loss sucks. But not as much as not having the capital to stay in the game and make your money on the next trade. -T Share this post Link to post Share on other sites
Fugu628 1 Report post Posted August 20, 2015 Edboc and TDM, appreciate a lot! Thank you for your sincere sharing and caring. Share this post Link to post Share on other sites
Edwin 63 Report post Posted August 20, 2015 Yeah, unfortunately I've run into something similar before. It's a tough lesson to lose a lot and realize you traded too many contracts for your account. Position sizing and risk management is more important than focusing on how much you can make on the trade. It's always an ongoing realization to focus on how much you can lose rather than how much you can make on a trade. Share this post Link to post Share on other sites
Chuck451 120 Report post Posted August 20, 2015 Hey Fugu628, I've been in a similar situation myself, watching something that I thought was a brilliant trade completely get away from me, continually rolling and adjusting trying to save it. Just like some of the other members here have said, the best thing I did was just close it and walk away taking the hard (and large) loss, and using it as a constant reminder to NEVER do it again. I definitely slept better once that trade was behind me, and removed that source of stress from my life. Share this post Link to post Share on other sites
indiana*josh 59 Report post Posted August 20, 2015 +1 to what the others have been saying. I've been in similar circumstances when I didn't stick to proper position sizing and allowed a bad trade to get much worse. Better to walk away before it wipes you out. Even though you haven't realized the loss by exiting the position, the loss is already real. It's already happened. I'll also echo what luxmon said: If you weren't already in the position, would you enter that position now? I often find it helpful to frame my thinking that way. If you decide to hold, it's essentially the same as opening the position now (apart from the trading costs). Good luck! Share this post Link to post Share on other sites
Edwin 63 Report post Posted September 2, 2015 If you're still in this position, you can thank your lucky stars that Citron is calling for a short on this. https://twitter.com/CitronResearch/status/639083537979674624 Share this post Link to post Share on other sites
Fugu628 1 Report post Posted September 2, 2015 If you're still in this position, you can thank your lucky stars that Citron is calling for a short on this. https://twitter.com/CitronResearch/status/639083537979674624 Thanks. I wish I waited till now. But I closed half of the 100 short call positions earlier when we were talking. So actually now I am kind of bullish biased... Share this post Link to post Share on other sites
Edwin 63 Report post Posted September 2, 2015 Yeah, i guess you never know what's going to happen, NFLX could be at 70-140 at the end of the year. Share this post Link to post Share on other sites
