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A Reminder to Not Marry Your Trades on Valentine’s Day

Posted On February 11, 2022 12:49 pm
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As we head into Valentine’s Day, I find myself assessing my love/hate relationship with trading. On one hand, the markets can be a cruel mistress. On the other hand, it can provide you with a bounty of love in the form of massive profits. Regardless, I still keep on coming back for more. 

To be clear, I mostly view Valentine’s Day as a Hallmark Holiday to create separation between myself and my money. However, that’s not to say that I haven’t used it to show my interest, or fidelity for that matter when courting an object of my desire.  

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This week’s been a trying time for my trading relationship. In other words, I’ve been torn between the steady — some might say boring — style of Options360 that reliably grinds out week-by-week profits.  And the racy, more volatile Earnings360 trades, which can turn hot or cold in a matter of hours, depending on the market’s mood. 

In the past few weeks, earnings trades have been particularly temperamental with stocks not responding as expected, with a handful reversing course in mere minutes.  But admittedly, my behavior has contributed to mercurial and often hair-pulling frustrations.  Case in point, my skill at identifying Earnings setups and entering an appropriate strategy; be it a directional debit spread, or a neutral iron condor.  However, I’ve been bad at the exit or break-up plan.  Basically, in what’s seemingly contradictory, I’ve freely engaged in what I know will be a wild short-term fling.  But, then behaving in a very prudish manner. 

Essentially, I’ve been exiting trades prematurely and taking small gains; trying to avoid heartbreaking losses.  To be clear, Earnings360, which has made 23 trades this quarter, is in the plus column. But, there have been 7 trades that I closed for basically break-even after the market opened due to them not responding in my ideal manner. If I let them play out for a few hours, they would’ve delivered an additional four figures of profits. 

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I go into these trades using limited risk positions and can afford to be patient knowing that even if the trade gets away, the financial harm would be as Monty Python says, merely “a flesh wound.”  But instead of being willing to let my bait be taken (whether it’s a dollar stake or a juicy steak), I’ve snatched it back at the first nibble. I’ve rationalized this behavior by telling myself I’m doing it to protect the members from losses. I’ve been worried about what they might think and don’t want to look bad. But, the reality is most members have been with Options360 or Earnings360 for years, and trust me… It’s a trust that’s been earned by delivering profits quarter after quarter and year after year. 

By the very nature of an expiration date, I’m not married to a trade. And I retain the right to leave should any position not behave or become unrewarding. However, while I’m involved, I need to trust what initially attracted me and enjoy our time together.  When I do, it’s usually very rewarding.  

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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.