<u><strong>Diary of an Options-Trading Newbie</strong></u>
With this being March 21 - Expiration Friday, I have been reflecting on some of the trades I made this month and I am learning a lot through my mistakes. I figure if I am putting myself on the line, I might as well let other beginners learn from my mistakes too. You more experienced traders may find this boring, but I hope you will feel free to chime in with your tips as you see fit. I feel pretty exposed doing this, so please if you have something to say just be respectful. (I know you will anyway.) Hopefully this will encourage other, less experienced people, to join in and get this thread going!
At the beginning of the month, I purchased shares of CSCO @ $14.31 and a few days later, some more @ $14.22. It looked like we were having a pretty rough ride down, and I was given fair warning by a more experienced person that we could be headed for $12 per share. Due to shaky nerves and lack of familiarity with this stock?s behavior, I let myself get paranoid and when the stock showed barely a hint of life above what I paid, I wrote some March 15 strike covered calls at a ridiculously low premium of 27 cents. A few days later, it took a bit of a nose-dive and I passed up the opportunity to buy back my calls and close out my position. I don?t know why I didn?t do that. I just didn?t know any better, but I do now. Instead of executing a buy-to-close, I watched the stock recover from those new lows and pick up pace? far exceeding my strike price. As of closing today, the calls I wrote are 98 cents in the money and I expect them to be exercised. While I am not losing anything I have invested and am walking away with some so-so profits, I did pass up the chance to close out my position and take advantage of the rebound we experienced. Instead of riding out these cheap calls for the last three weeks ? I could have written several more and at a premium of about five times what I initially sold for. Live and learn! This has prepared me to do better as I gear up for April contracts.
On March 12, I purchased shares of BAC @ $5.03. A day later, the stock rose by nearly a dollar and I wrote March 6 strike calls for 41 cents. The stock kept rising and as of yesterday ? it briefly hit over $8.50, however as expiration quickly approached today, it was only about 20 cents above my strike price. Having second thoughts about letting these shares get called away, I debated whether or not to buy back my calls. I do not know where BAC is headed in the next day, let alone the next week, but I feel the price I paid of five bucks is fair enough and I did not want to let these get away. So with 10 minutes to spare before closing ? I executed a buy-to-close at a 25 cent contract premium. Whether or not this is a good idea is yet to be proven. After everything was said and done with these BAC calls, I really did not come out ahead much at all but at the very least, I offered myself downside protection. We will see what happens next week?
My goal starting Monday is to not be so trigger-happy with writing calls. I am going to look for a larger up-swing with our ready-steady friend CSCO and contract premiums of closer to a dollar before making a move. As for BAC, if we see some nice numbers next week, I may just cash out and walk.
I hope some more ladies might feel like they want to share their experiences with options. I know as women we tend to be hesitant to jump in. Just remember that Ginger Rogers did everything Fred Astaire did, except backwards and in high heels!
Happy Trading!
Good 'nuf for me!