Three weeks of paper trading and I was ready to take on the world. I mean, stock options were simple, right!? All I had to do was pick the correct direction and buy the appropriate option!
That was the mindset I had when I bought my first option on March 7, 2012! I'll never forget it, a GMCR put. A couple days later my $700 investment was now worth $1,700! I was thrilled! So I sold it, and booked that $1,000 profit. Life was good!
...until the market closed.
Interestingly enough that afternoon SBUX announced that it would be entering the home single cup brewing space and GMCR got CRUSHED, falling from the low $60's to about $48! So as you can imagine when I got up the next day I was shocked and SICKENED! The put I had sold the day before for $1.70 (I had 10 contracts), was now worth $8!!! I wanted to throw up! The reality hit me square in the face. If I had waited just ONE MORE DAY, I could've sold my position for a $7,300 profit - which was more than DOUBLE my account value at the time!! I never knew making $1,000 in two days could suck so bad!
For the next couple months I set off in search of that kind of play. To use a baseball analogy, I was swinging for the fences. Every now and then I'd hit a home run, but most of the time I was striking out!
For the life of me I couldn't figure this thing out. I was losing money on 6 out of 10 trades. Here's the frustrating part though, I was actually good at reading charts, picking moves and finding entry points, but I couldn't translate that into profits. Things like time decay, volatility and poor trade management were killing me. I could anticipate moves pretty well, but I couldn't always predict the exact timing or strength of those moves. You see, when you directionally trade options, you have to REALLY, REALLY be right about the direction.
Here's the bottom line, I was at the casino trying to beat the house, and the house was winning.
There had to be a better way... and I was determined to find it!