Life with options #3

When it goes wrong ...

Photo by Sebastian Herrmann on UnSplash

Inevitably no matter what you ability or success record you will be caught out. Options by definition, derive their price from volatility and as the word implies that means what moves up must move down. It’s very easy thinking you understand this, that you’ve acknowledged some money may have to be lost along the way, but dealing with it first hand can be more difficult than first imagined. Everyone’s different, so I caution to give my advice as truth, but dealing with losses is crucial to knowing how you will navigate trading options.

I’ve never lost large amounts of money on any one particular thing. It’s usually just a trickle decline of unchecked spending on whatever the next imaginative thing pops in my head to buy on Amazon. So when it came to thinking about the prospect of losing my $25K account I don’t think I fully grasped it. Sure I knew it was possible, but what I didn’t know is was I OK with it? How much of it was I OK to lose? Would my losses outweigh my gains? Questions that probably should have had more thought out answers in my head when I began. In my typical fashion I did not, as I rationalised when I go to gamble I don’t mind losing some money as long as I’ve enjoyed my evening. But losing $50 on a fun evening is not the same as losing $2500 on an average Wednesday afternoon. Something I have now learned.

When a trade goes against you, you start second guessing everything that you did about that trade. For me my mind starts whirling with the “what ifs” on how better I could have executed my strategy. Maybe I got the data wrong, maybe my strategy is just poor or maybe my sacrifices to the options gods weren’t well received and my choices deliberately punished. Perhaps the last one is a little far fetched. But nonetheless these are the range of feelings and thoughts I get, regardless of how trivial they might seem, they are real.

These emotions muddy the arena of good decision making and wreck havoc on sticking to your principals you set in your trading plan. My efforts to limit the losses and chase the one off wins to reverse the account value has only fuelled the already raging fire that’s burning a hole in my account. Poor decision making is by far the worst outcome I’ve encountered due to my emotional side of trading. Hind sight is always 20/20 but it’s worse when you know (like me) that choices could have so easily been different.

Getting into the real stuff, I’m now a few months into trading and March saw me wipe out any gains I had made in February and some. In truth I am currently down from my initial investment. It’s been a tough reality check. It’s not made me feel good. For the past month it feels like there isn’t a week where it all runs even relatively smoothly. Just as I look to venture back on track, I spin off from hitting that banana peel in the middle of the circuit. That heavy headed feeling sets in of how much longer can I go on gambling with money that I need to live off? The frustrations have awakened and it’s become a constant battle to keep them at bay, especially when it feels like the demons gathering strength.

I constantly keep reminding myself of the need to view the losses as lessons. For the most part I’ve actually done this quite well and it’s been a useful tool to tweak my strategy. But the losses are still short comings and to some degree it always niggles me that I got any of it wrong in the first place. Perhaps this points to my not so nuanced blend of naivety, inexperience and hopefulness. Although still even with the tweaking and reviewing its still been a tough period for me. As I imagine many traders have felt, it feels no matter what rationale I put to each trade the market just wants to move against me. It’s like putting money on red and black and the ball ends up on 0.

It becomes unbelievably consuming if you let it, which in some respects I have. Trading has to remain as unemotional and as clinical as possible in my view. But even for myself that is a lot easier said than done. I haven’t found the answer yet to deal with these surmounting emotions towards the losses in trading, but they will be found. My drive to make options trading work is forcing me to navigate a way through these uncharted waters. There’s not a lighthouse on the horizon just yet but time for some soul searching and reflection on the lonely choppy waters of the market.