mortlightman 9:11 am on Thursday, March 28, 2019

Jeff what is your opinion…

Jeff what is your opinion on RH? I have a 135/137 call spread. It is under water at this time, no sure whether to gamble on a pop or take a small loss. cost 1.01

Jeff 9:21 am on Thursday, March 28, 2019

Small loss! If you’d said big loss I would have thought about it. But small loss for sure. It almost always moves big and more often to the upside. Whatever decision you make, don’t let the price action tomorrow second guess yourself.
- Jeff 9:23 am on Thursday, March 28, 2019
  
  On the other hand, your max loss is only 2.00 minus credit when sold. That’s a “small loss” too, so decide between the two.
  
  But playing the odds, greater risk is to upside.
  - mortlightman 9:27 am on Thursday, March 28, 2019
    
    when you risk is to the upside does that mean move up?
    It is either lose 100 or make 100 per contract
    - Jeff 9:42 am on Thursday, March 28, 2019
      
      “Risk is to upside” means there’s a better chance of a move up than down.
      
      If you stand to make or lose the same amount, it’s a tougher decision, but we can look at the odds:
      
      Your full loss is at a 5.4% up move, short strike at a 3.8% up move. It has moved less than either of those only 3 times out of the last 12. Out of the remaining 9 times, it moved down 4 and up 5 times.
      
      So out of 12, your trade would have survived 7 times and lost 5. That means stay in the trade.
      
      (One thing to note, however… 2 of the “small” moves of 3-4% had intraday moves in excess of 10% higher. On those days, you would have had to accept full loss midday and ignore the trade, only to see it become a winner by day’s end. If you close in panic, that would change the odds!)
      - mortlightman 6:35 am on Friday, March 29, 2019
        
        Gambled and lost as of now
Jeff 6:29 am on Friday, March 29, 2019

Well, did you stay in the trade?
- mortlightman 6:35 am on Friday, March 29, 2019
  
  yes total loss
  - Jeff 6:38 am on Friday, March 29, 2019
    
    what do you mean? Are you saying it was a LONG call spread? I thought it was a short. All my answers were to it being a BeCS, call credit spread.
    - mortlightman 6:41 am on Friday, March 29, 2019
      
      no I was long
      - Jeff 6:43 am on Friday, March 29, 2019
        
        Well, sorry for not confirming that, but all of my answers were referring to a short spread. When I said “your full loss is at a 5.4% UP move” you should have noticed that didn’t sync with your trade. So my analysis showed the opposite, you should have closed the trade based on the odds.
        
        mortlightman 6:46 am on Friday, March 29, 2019
        
        will communicate better next time, Thanks. Was not a big loss.
        
        Jeff 6:56 am on Friday, March 29, 2019
        
        Thanks back to you. That was actually a good experiment in determining odds based on the earnings event. I think it’s an approach I can use to build a template for answering these questions. It would have added another element if your win/loss was not even. If, perhaps, you stood to gain 2.00 but lose only 1.00, that would have switched the answer to staying in the trade.
        
        mortlightman 7:06 am on Friday, March 29, 2019
        
        Since it cost 1.00 for a 2.00 wide spread (In-OUT) I rolled the dice and lost, I also should have known better after looking at the option actions for that day, lots of put buying. just a stupid mistake could have been a lot worse

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