Trading Psychology: Knowing When to Cut Your Losses

Trading Psychology: Knowing When to Cut Your Losses

Posted On August 10, 2021 1:05 pm

If you haven’t gotten around to reading my past few emails, I am indeed moving. Luckily, my new residence is just down the block. However, for a few weeks I was sweating bullets as availability — at almost every price point — was next to zero! 

Speaking of, today I’d like to talk about “moving” on from a losing trade, specifically Teladoc (TDOC), which I closed today for a 16% or $65 loss. This comes just two days after I opened the position. 

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Before getting into the details of my quick TDOC exit, I want to provide you with the general framework of how my Options360 Concierge Trading Service operates. After all, hundreds of people have reaped its monetary benefits, so why shouldn’t you, at the very least, hear about it?

We do not own positions, we rent. This is true for all options trading as these said positions have a definitive expiration date. However, unlike an apartment lease, which may be binding sans a major external event, options trading affords us the ability to move out any time we wish. 

Okay, with that out of the way, let’s get back to TDOC.  We had a quick successful trade last week in the form of a bull put spread that we closed out for a 52% gain on the one-day holding period. My initial premise after a big reversal following their earnings report was that the stock would consolidate and hold support around the $147-$148 level. The rapid bounce last week allowed for the quick exit of the bull put spread. 

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TDOC stock chart

Hence, I was encouraged by the action two days later that Options360 took a more aggressive approach. On Friday, with shares trading around $149, we established a short-term bullish call position. 

Today, TDOC has put in an “outside” day to the downside. We closed the position for a small loss. 

The thing about options trading is that you have a time frame you can’t control imposed on you. However, what you can control is your time management. 

Let’s put it this way: TDOC sprung a leak and I chose to move along before it could cause major damage. It may be repaired and come back. But, my time and money are better spent looking for new opportunities. 

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About author

Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.