Lessons Learned: A 349% win and a 98% loser
Plus, new trade ideas with TWLO and SCHW to get things rolling for the week.
You win some, you lose some, and you live to fight another day.
Learning from your wins and losses is a big part of maintaining consistency as a trader and you will not learn if you do not take time to study and reflect.
I admit, I do not do this often enough.
So, let’s take a look at a recent big win and a recent bust to see what we can take away from each.
And as promised, another trade idea for the week.
First, let’s take a look at the winner.
VNOM Call Options Gain 349%
On January 23rd I posted a trade consideration for VNOM, looking to go long with call options on a retest and hold above 30.95 after breaking above this resistance level.
You can find those trade details here.
We got the hold and the opportunity to trade what turned out to be an absolutely massive move higher.
The $31 strike call options were at-the-money (ATM) and were priced for less than $1.00 per contract.
By the time the Feb 16th expiration date came around, VNOM shares were trading at $35.45 and the options had gained more than 349%.
Incredible!
This was an example of the huge rewards options trading can bring if you wait for the right set up to unfold before taking the trade.
Another lesson from this trade is to leave runners.
This means, as you hit profit targets you want to sell some of your position and lock in those returns but you also want to leave a few contracts open to capture more upside.
There are a couple of ways to do this.
You can “scale out” of the contracts you own. For example, if you bought 5 contract you might sell two of them at the first profit target and then one more contract at each of the next two levels.
This would leave one contract open to capture more upside should it come.
Keep in mind, this contract is worth a lot more than the $100 it started at. I move my stop loss levels up as the trade continues higher to ensure I don’t give it all back.
Another consideration would be to “roll” your options.
This means you close out your current position entirely and then take a portion of your profits and buy higher strike options to stay in the trade.
If shares look like they can really keep things going and the options I currently hold are beginning to grow to a size that I typcially do not trade, I will roll my options.
RIVN Calls Get Beat Down
You might have noticed that after earnings reported for VNOM in the above chart, shares powered even higher and staying in the options would have added to your already tremendous gains.
Sometimes hanging on through earnings works out, but sometimes it does not.
When the report goes against you and you are holding options contracts, there is really nothing you can do other than take the loss and move on.
The terrible decision to hang onto my RIVN calls through earnings was a mistake that cost me the entire trade.
I do not typically trade through earnings for this very reason.
Take a look at the chart.
The 20% drop post earnings completely wiped out the $17 strike options contracts and any chance for recovery.
The plan that I should have stuck to was taking profits ahead of earnings and if they weren’t there, cut my losses ahead of time.
Instead, I got stubborn and held the trade through the report.
You can see the consolidation at the volume shelf that was taking place and I expected a bounce off of this shelf.
The risk was too great though with no suport below to catch shares if they broke, which is why RIVN fell so far so fast.
I think the lure of many huge wins on earnings recently was what kept me in this trade. A greedy mistake.
And with that, I feel great! Learning is part of the trading process and we have had some huge wins recently.
I am looking for more and I think the opportunities are there with a short trade for TWLO and a long trade with SCHB to consider.
Let’s get to trading these options!
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