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How I Lost Thousands Of Dollars On One Successful Trade
A winning trade cost me thousands of dollars.
And I’ll explain how.
One of my goals in 2023 is to build-up my options trading portfolio to the point where I can write one out-of-the-money put per month on a stock in the $70 — $150 range.
These stocks generally pay higher dollar-amount premiums.
And, I’m mostly looking to underwrite mega-caps, or index funds.
Back in March I underwrote a McCormick & Company put option.
$70 strike price. September 15th expiration date. $310 premium. Or, a 4% ROI ($310 divided by the $7,000 of collateral) in six months.
My prediction that McCormick stock was at its low was correct.
What I got wrong, however, was how far and how fast the stock would rally.
McCormick shares jumped from their $71 low, to their current $87.72 valuation. And my put option dropped from $310 to $40.
I cashed out last Friday at $40, turning a $270 profit.
But, I also lost out on approximately $1,700 of gains (plus $156 in annual dividends) by trading puts, versus buying the stock outright.
The moral of the story?
Sometimes simple is better.
Buying-and-holding a stock you want takes a lot less brainpower than calculating options or trying to decipher market psychology.
Same index investing.
The S&P is up almost 10% year to date. Meanwhile, plenty of “value stocks,” “inflationary hedges,” and “catalyst investments” are seeing red.
You don’t always need to overthink things.
Disclaimer: This article is for entertainment purposes only. It is not financial advice, always do your own research.
