I HATE taking losses! HATE IT!!!
I have done everything in my power to find ANY excuse not to take them. I've searched high and low for a "full-proof" way to avoid them. My most recent experiment... "rollin' 'em out" ain't working worth a flip - just take a look at my current positions. Personally, rolling out option spreads just increases your risk while lowering your reward. Who wants that?!?!
The bottom line is this... the only way to avoid compounding your losses and letting 'em turn into an absolute shit storm - is by CUTTING THEM and MOVING ON!
Honestly though... there's something strangely satisfying and therapeutic when you cut your losses. It's like deep down you know it's the right thing to do... you know it's a discipline you must learn to survive in this trading world. I actually feel liberated when I cut that dead cancerous weight out of my portfolio.
OK OK... maybe that's a bit of a stretch, but you get what I'm saying - don't let you losers run and run and run.
So... I say ALL that to say this - I've got my eye on DE and LNKD! Two plays that are not moving in my direction.
Lets start with DE (September 82.50/81 credit put spread)... I put this play on Friday the 29th of August. That day the stock was trading around $84 and it looked like it may have found a temporary bottom the day before at 83.19. Well the trade went my way for about A DAY! It's been downhill since. What concerns me is that the last three days it's been lower highs and lower lows, plus each close has been lower than the day before. Volume has also picked up. Today (Friday) DE closed at 82.79 - it's lowest close of 2014. $83 had been great support, but today it broke. The next level of support I see is $80.
So here's what I'm going to do... I'm holding for now, BUT I'm keeping this trade on a VERY short leash. Currently I'm down $85 or so - not bad, but the max loss on this play is $630! And if it trades down to $80, or anything below $81, I'll take the full max loss - that I WILL NOT LET HAPPEN! So, if this thing closes BELOW today's close of $82.79, I'm taking notice. If it closes BELOW $82.50 anytime between now and September expiration - I'm OUT!
I cannot risk this trade running against me and costing me $630. I'm fully aware DE could run down to $82, or even $81.50 and bounce back up and close above $82.50 by September expiration, but I can't worry with that. I've let too many trades CRUSH me with my "hopeful" thinking.
On to LNKD (September (W) 235/240 credit call spread)... I set this trade up a couple days ago when LNKD was trading around $225. Today is crossed $230 for a bit in the last hour of trading before settling at $229.63. My mental stop on this play is the first close over $235. I'm currently down $72 in the trade, but the max loss is right at $900.
Folks I hate taking losses, but it's a discipline I've got to master.