no MO please!

Well looking back on my last few posts you might think I'm a damn genius! I set up a WFM play on Monday that I booked for a profit yesterday. I closed out a profitable COST trade, AND my SPY play is working out beautifully!

But... I pick losers too, and I've sure got one in the making right now. For whatever reason I keep thinking I can pick a top on MO. NOPE! Ain't happening! 

So here's what I got going, back on April 10th I set up a May MO credit call spread. I sold to open the 38 call, and bought to open the 39 call. I played 5 contracts and collected $205 in premiums while risking a max of $285. I was just so sure this thing was going to make a double top, or hit some sort of resistance. I was wrong. Since setting up the play, MO has continued up. The day I opened the trade MO closed at 37.82. I was feeling good!

That didn't last long, MO is now trading at all-time highs (38.96), and I'm faced with the decision of WHEN to cut this loser! If I closed it right now, I'd lose about $135, which is a hell of a lot better than the max loss of $285. However I'm thinking this thing will pullback, even a little bit next week, thus presenting a better exit. So I'm waiting, but eyeing it for a better exit and a smaller loss.

This is the rub with option spreads, because let me tell you how this could play out. 1) I close the trade for a loss and MO goes on to make new ATH's. Therefore making me look like a genius because I cut my losses. OR 2) MO pulls back and lands BELOW 38 at May expiration. In which that case I took the loss for NO REASON, because the damn thing expired worthless anyway. Not only costing me in what I lost, BUT costing me the chance to keep the original $205 premium!

This is the tough stuff people, the things that go on in between your ears! But the bottom line is this, trade management is key right now. I'm watching it like a hawk!