Getting off to a bad start this year, already some bad trades under my belt with the volatility. You can be long for a trade but if the market is going down it will take all stocks with it. Same if you are short.
On Friday I got fooled. I was buying a promising stock for a trade and was averaging in. I put a large amount in but then things started to hit a wall and kept bouncing up against it. The more I found out the less I liked about the company. Now I had to start mitigating losses because I had a feeling the thing was going to crash ...and sure enough...
When you have a situation like that you can sell outright but because I had too many trades I could not sell. Thankfully the stock had options so now I could use that tool to try to fix things.
My average price was 5.29. I sold 4.00 calls against it, collecting 1.35 in premiums that expire next Friday. That gave me some downside insurance, so my losses would be covered to that point if it expires worthless and held to expiration .. and stock was right at $4.00. Below that and your losses continue, that is why I also bought puts while they were still cheap.
I also bought 5.00 puts for .60 meaning that I could not lose more than 4.40 per share even if the company stock went to zero. I also bought 3.50 puts for .30 just for giggles.
Right after closing the company declared a stock offering at 3.20 per share! All the options paid off (on paper, for now)
On paper I am actually up $124 because of the remedial options. Sure beats a $3,000 loss.
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