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Strategies & Market Trends : Tech Stock Options -- Ignore unavailable to you. Want to Upgrade?

To: donald sew who wrote (32480)	1/8/1998 12:26:00 PM
From: j g cordes	Read Replies (3) \| Respond to of 58727

Don, all good points on exiting. I've tried to draw an anology to playing and winning in options. Its difficult to convince a first time observer or first time winner because it really does look like a pot of gold is just around the corner. INTC moves up and down 3-5 points every few days it seems, just buy calls at the low and puts at the highs... easy money. The odd thing is that options work well for first timers remarkably well. Whats the reason for this? Very simple, I can relate that from my own experience. I bought IBM Jan calls some 18 years ago or so, put up a couple of thousand, thinking that their sales were better than what the market had priced the stock at. Sure enough, three days later I sold them for a 50% profit after commissions. I couldn't believe how fast that money was compared to buying shares or compared to getting a 6% bank deposit return for a year! The trades continued, each doing really well. The key element was that I was SCARED when I was trading. When the profit was there I sold and kept the money, the second it started to lose (hey, I could lose a whole year's interest at the bank in one day!), I sold before the trade went negative. If I took a position and it immediately went negative, I sold the second it got to par to close to it. I had that hole in the stomach feeling when I bought and it wouldn't go away until I sold. FEAR was the guiding hand to good trades. After a while I actually let myself get used to losing a few trades. I let some slip so badly that I rationalized I may as well not even sell the damn things if all I could get were 3/16 on a 2 pt buy. That's the fatal mistake, I made friends with my losses, became indifferent to the negative balance because I mentally remembered how quickly profits could grow when I was right... therefore I held out for more money when trades went my way. 50% wasn't good enough, I had to have doubles, quadruples, get the latest takeover play and run an option at 1 buck up to 8. Of course the odds quickly went against me playing that way... Being unwilling to sell quickly at the slightest loss, devastated the most valuable asset in trading, CAPITAL to play the game. The other axe that fell was swinging for the fenses, not taking easy money off the table when it was free. Geez this sounds like Optons Anonymous or something <g> So I got out for a long time, then went back in and the same course of events took place.. trading small and scared leading to cavalier and bigger trades. The pattern is common after talking with others. Now I trade for the surest hit I can find, don't go for broke and if the market says my money is about to be reduced in value... I tuck my pride into a sell order and get out as quickly as possible. The results are consistent for the most part and every year since then has been good. Goodluck... its a sellers world, and buyers beware Jim

To: donald sew who wrote (32480)	1/8/1998 12:29:00 PM
From: Esteban	Read Replies (2) \| Respond to of 58727

Donald, Re: Now my question is would one have sold or held? Maybe a discussion on this may make others better on their exit skills. You've hit the nail on the head as far as your observation about the difficulty of closing losing trades. EVERYBODY knows that this is essential for success, but the psychological pressure works against us so strongly in this regard that only a few can do it consistently. I think you have the right approach. You've got to look at it from the technicals and avoid thinking in terms of how much you are currently losing. This shift in attitude can make all the difference. The time to consider what you might lose is before you enter the trade, and if the possible percentage loss is high given the broken support points that would trigger your sell, then it's necessary to adjust the amount of your trade, or pass all together. My take on the dynamics of this particular case is that technology is performing remarkably well in light of last night's Asia news, and the DOW is not down as much as I would think given the same news. If your support holds, why sell? Unless of course you get a sell signal from your guitar, but from what I understand your system doesn't work that way. (Needs to be overbought before triggering a sell, I think.) I see as I'm ready to post this that the jury is still out on this afternoon's direction. We've got an intraday triangle well developed, just have to wait and see. You're right, exiting in a timely fashion is the key, but the quick exit is not always the right one. I hope there's more discussion about this from you and others. Esteban

To: donald sew who wrote (32480)	1/8/1998 1:21:00 PM
From: randy kay	Respond to of 58727

Donald, I think you did the right thing, I know I would have bailed for sure. The other day I bought some Nortel puts, I felt the decision was too rushed but for some reason I still bought them, they dropped like a rock within a few hours, I bailed at about a 30% loss luckily I bought calls right away which more than made up for the loss. I didn't hesitate to sell the puts though because I've lost like this before and I've sometimes sat there for days agonizing only to lose more or everything in the end. So, now I'm the human cannon ball, KABOOM I'm out there! <gg> I also don't dwell on my mistakes anymore, I just try to never repeat them. That's my 2 cents, hope it helps and I hope we get some other stories. Here is an interesting excerpt from 'The New Market Wizards' by a guy named Randy McKay which I read last night. They are talking about when the market is severely against you but I think the principal still applies. Question: In catastrophic stuations, when a surprise news event causes futures to lock at the daily limit and the cash market to immediately move the equivalent of several limit days in futures, do you find that you're generally better off getting out right away, as opposed to taking your chances by waiting until the futures market trades freely? McKay: There's a principle I follow that never allows me to even make that decision. When I get hurt in the market, I get the hell out, because I believe that once you're hurt in the market, your decisions are going to be far less objective than they are when you're doing well. And if the market rallied 1,800 points that day to close higher, I couldn't have cared less. If you stick around when the market is severly against you, sooner or later they're going to carry you out.