A follow up on our little squeeze trade on Coeur Mining (CDE) (June 18, 2015)
I want to go back to Coeur Mining ( NYSE:CDE ); I had mentioned this yesterday because it was in such a great squeeze pattern. The day before all it offered was just possibilities and then yesterday, high volume breakout, we love to see these. So Coeur d’Alene ( NYSE:CDE ), as it used to be known, broke out yesterday and the word was that some really smart trader had sold the July, not June, the July $6.00 calls at 20 cents. That seemed like a really smart thing to do; like over 14,000 of them, almost $300,000.00 worth of premium they took in.
Well that’s not really working out too well for them, which tends to be why I always am suspicious about those analysts that just kind of trade along with a knucklehead that just threw a bunch of money at something. Because by the way, this is an aside, I used to know a guy, I had to kick him to the curb because he kept asking me too many questions about trading. He had more money, HAD more money than a lot of states in the Union here and he was a big trader, really, really big trader. Although actually he wasn’t a big trader he was a big gambler. And yes I’m talking to you when I’m saying this; he was a big gambler.
The only difference between him and a lot of people who trade is, BIG, he had a lot of money.The interesting thing is, and I’m morphing into coaching right now, the interesting thing is the folks that have the least amount of money are those that should be gambling the least. You have much less margin for error if you have a small portfolio. By the way it could be that the reason why you’re not a member of “Stock Market Mentor” is because you have a small portfolio, and I get that, I totally get that. If you can’t afford it then you can’t afford it and don’t apologize for it, just keep watching these videos and I’m going to do the best I can.
But the thing is, if you don’t have a lot of money you shouldn’t be gambling. You shouldn’t be that guy. Yes I’m talking to you on this, “Well I know I’m trading to aggressively, or I know I’m taking a lot of risk here, but once I make a bunch of money then I’ll stop doing that and I’ll trade right.” You know you’ve got to think about that. Really? Is that really a good trading approach? Because I’ve got to tell you, if I’m going to make a boatload of money by gambling, and I feel really confident about that, that is how I’m going to trade. So you’re the ones that should be focusing on managing your risk, not counting you’re 100 percent annual returns.
But anyway back to this guy; so he liked to take big bets, he didn’t know squat about trading but he knew how to buy calls and he knew how to buy out of the money calls. On one of the stocks, a while ago, he placed such a huge bet on options, on out of the money options, such a massive trade on out of the money options that he actually made “Fast Money”. They were talking about the trade on “Fast Money” and I think it was Cree ( NASDAQ:CREE ).
It was several years ago, might have been somewhere in here (Fri. 9/2/11), but he bought a gob of calls, out of the money calls. He had asked me about it first and I said, “Don’t even do that.” But he knew something and so he went ahead and placed that trade anyway. I just remember watching that discussion on CNBC and I thought, if these people just knew what a buffoon this guy was, as far as trading, if they knew, they would not be talking about this, they would actually be taking the other side of that trade. So my point is, when it comes to trading the size of the trade does not equate to the intellect of the trader.
You have to make your own decisions. Here on this one, if you would have gone along with that trader and sell those July $6.00 calls for 20 cents, well right now I’m not telling you anything that you don’t already know, because you’ve been looking at it all day. Those same calls are bid at 40 cents, and they’re offered at 45. So you’ve sold those calls now you have to buy them back, you’ve got to pay over 100 percent for them. So you made about 300,000 yesterday, you’re down about 600,000 today. Not a good way to be trading. What I mean by down about 600,00 is, you had 300,000, then it goes to zero, and now you owe 300,000.
So be careful about these types of things. Go ahead and just trade according to the chart, not according to anything else. By the way, if you’re somebody who trades really big, and you gamble and all that stuff, don’t let my quote “disparaging” remarks offend you; it has nothing to do with anything personal, it’s not a personal thing. It is strictly a trading thing, because I’ve said this for years; this is not about trading, this is about managing risk. You’ve got to be managing your money in the market like and insurance company. That’s literally the way you need to be thinking about it.
If you’re trading options get out the deltas and the thetas and the gammas, implied volatility odds that the option is going to expire in the money or out of the money; those are your actuarial tables. You need to be familiar with those just like Warren Buffett is on his insurance companies. That is how you should be trading. You should be thinking about being an insurance company managing risk. Insurance companies think about this, they don’t even take huge losses, they’ll take losses, but they don’t take huge losses when a natural disaster like hurricane Katrina hits. Do you know why? Because there’s such a thing as reinsurance, otherwise known as diversification, you could look it up.
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