What’s goin’ on everybody?
If you’re a parent like me, you know that life can bring some extreme emotional highs and lows.
We want the best for our kids, and while we know the benefit of an old-fashioned learning lesson, we hate the pain that usually comes with these moments.
Now, my oldest son’s spring basketball season has just begun.
While his team won their last three tournaments, this year started with a loss in the championship.
As you can tell from my son’s face it’s not a full smile that he’s got goin’ on,
as he is holding a second-place trophy.
As a former collegiate and professional athlete, I hate that my son lost, but I love that he had the experience of losing such a big game so early on.
I think we all learn at an early age that no one really cares about 2nd place, except for your family, of course.
My friends, in this new world of participation trophies, don’t be fooled.
It’s hard life lessons like these that help us establish the foundation needed to prepare us for the harsh realities of life.
And if you haven’t figured it out by now, traders that haven’t developed a tough shell don’t last in this business.
My friends, you need to get PSYCHED UP for the 2022 NCAA Division I Men’s Basketball Tournament (“March Madness”) which is coming up on March 15th!
Not because it’s awesome, but because the strategy adjustments that are required for teams to keep advancing can teach you a lot about trading.
Like trading, the game of basketball involves a ton of strategy!
There are so many sports that remind me of trading.
Now, I can hear some of you saying, “What the heck are you talking about, Ben?”
To win at any sport, more important than having a good strategy in place is being able to quickly change your strategy when it’s not working.
Earlier this month, I approached PINS with a strategy, but I wasn’t nimble enough to change that strategy when conditions changed.
My original call on 2/3/22 was to buy the 18 Mar 22 $32.50 Calls for $0.58, and exit with a target at or above $3.00.
The strategy I used to enter this trade was as follows:
- Use my tools to identify an idea – (PINS)
- After identifying PINS, wait until earnings passed
- Chose relatively inexpensive options with great potential
- Pick a level (> $28) to scale into the trade
- Start with a small “starter position” = 1% of my portfolio
On the daily chart below, I have highlighted the area where I entered the trade, again with a “starter position.”
What I mean by this is that I liked the trade so much that, even though the stock had not climbed above the $28 level that I chose to scale in above, I wanted to start a very small position just to get into the trade, with the plan of building a larger position above $28.
In my eyes, I did everything according to plan up to that point.
Where things started to unravel was the equivalent of the first quarter of a basketball game.
For instance, as this next hourly chart of the 18 Mar 22 options contract shows, shortly after I entered the trade rumors began to swirl about a potential buyout.
As a result, the call options that I had purchased at $0.58 quickly swelled to $0.90.
At that point, I DID NOT take some profits off the table, AND I DID NOT remember one of the important lessons that I have learned from reading so many great trading books over the years.
That lesson?
I learned from the book “Reminiscence of a Stock Trader” that
price should act like it is supposed to act!
In this example, that means, if the rumored buyout were true at the time, the price of the stock should have remained bid and reversed immediately lower just an hour after the rumor hit.
Now that the stock has continued to sell off into this market action and with two weeks left on the trade, I’m in capitulation mode and HODL’ing as the stock will most likely not reach the strike intended.
Win some, lose some.
Just be disciplined enough to keep from losing more than you win. That’s the nature of trading.
BUT…The most important thing is to have a plan for your trade. My plan was to begin with a small starter position and add as it proved itself.
This trade hasn’t worked, but I’ve managed the risk based on my position size so I’m ok to hold even though it’s down
