The rationale for staying in vs. closing positions

You must be logged in to view this content. Please log in Open Trades

3 comments

  1. avatar joekrug15 says:

    Can you please explain COP. In the video you “never average down”. Yet, COP seems to be allowing an option to work but not. I bought in at the beginning and have been selling the $65 calls to reduce my cost basis. I am quite happy with that.
    However, how do you determine when to do this method and when to cut-and-run. For example, what if BA had moved lower first. Would you sell the OTM calls or cut the trade.

  2. avatar Hautefeuille1b says:

    As to Corning GLW you say how your tracking software automatically stopped you out for a 25% gain!!! How lucky for you!

    I had my stops set and got stopped out for a LOSS! The stock gappd down, then bounced. By the time I realized the stop had triggered, the price had taken off. I could no longer get the buy at the recommended price, or even close to it.

    What are we small-time beginners supposed to do in a situation like that? I don’t want to chase the option and pay too dearly.

    • avatar Tim_S says:

      @Hautefeullle1b – I had the same thing happen to me on the $GLW trade. I saw an email adjusting the stop on the position up, which I did … and then I got shaken out for a loss on the trade. I saw the stock had bounced, and so I bought my calls back, but couldn’t get back in where I was before. I had to buy up. I did it knowing the risk, and that it should impact my expectations on the trade.

      Today when Dan recommended closing the trade and taking profits, I left my position open. I felt like there was still a chance for this to work higher, and since the calls were for July I have some time for it to happen. I was willing to leave it alone for a while longer.

      Sometimes … you’re going to have that happen with your trades. That is one of the risks of using stops. The alternative, though, is to trade without stops, and risk taking a massive loss when the trade is working against you. Last week, my stop on a bull call spread in $TSO got hit when the hijacked tweet was sent out from the AP’s Twitter account. What had been a very profitable position got closed at barely a break even. I was seriously bent about it, but again … sometimes that’s going to happen. That’s how it goes with trading.

      I know that I haven’t really answered your question for you, but unfortunately there isn’t a real straightforward answer to it. Sometimes goofy things are going to happen with your trades, and as a “home gamer” (as Cramer calls us) there’s not much we can do. That’s the biggest reason in favor of using stops, making good entries, and being sure that you feel like big money is buying after or alongside you. We can’t move stocks on our own.

      All the best!

      – Tim

Leave a Comment