How I Lost $632 In Feb 23 Using Options

Ouch. A loss for this month.

While most people would probably shy away from sharing the stories of their losses, this is the reality when selling options and I think it is worthwhile sharing with my readers my reflection on these losses.

As the saying goes, "I either win or learn". So through these losses, I examine and analyse what can I do better in my trading entry and exit management.

Ready? Let's dive in to the trades that I have closed in Feb 23.

Trades Closed in Feb 23

Here's a snapshot of the trades taken in February 23.

As you can see from the above, I only took a total of three trades. There are relatively less trades taken due to earnings season. For those who are in the Options Cash Flow Mastery Course, you would understand why I wouldn't want to take a trade through earnings. That's right, it is due to potential sudden movement in share price.

A good example was META which reported earnings on 1 Feb 23.

The share price jumped from $153 all the way to $182 - a whooping 19.43%.

Now imagine if you took a sell call spread through META earnings. Ouch.

This is why I never want to hold my trades through earnings.

This was also the reason why I closed PYPL on trade on 9 Feb 23 as well. On hindsight, if I never closed it, I would have made an extra few hundred dollars since the price actually fell after earnings (i.e. in my favour). But hey, I rather be safe than sorry. 

Lessons Learnt

I always make it a point to review my losing trades and to see where I can do better in the future.

In the first row of my trades (shown above), you can see that there was a loss of $1,120 on AMAT, which I entered on 10 Jan 23, and closed on 2 Feb 23 at a loss. Below is the chart for illustration.

First of all, there was nothing fundamentally wrong with my entry. I did follow my entry rules and only sell the BCS when the stochastics was high. The stochastics was high during 10 Jan 23.

But I then reflect, what I could have done better.

I then plotted the orange dotted arrow you see in the image. As you can see, the distance between the candle (on the date of entry) and the resistance line has quite a huge gap. Usually, I am not too bothered by this. Because as long as my sell strike is above the resistance line - I still have a good margin of safety.

But what I realised is that, my margin of safety could be even better.

I could have waited for the gap between the candle and the resistance line to close up further first, before entering a position. This not only increases my margin of safety and even if the stock moves against me and I need to cut my losses, the losses would have been smaller.

And yes, I will incorporate this when deciding trades in the future from now on.