Well …. that was a … something.
What happened last week?
Everything. Everywhere. And all at once. Seriously. What was that?! We went into the week with the markets down, with September ending lower by about 9%. Seemed like a great time to sells some OTM covered calls on COIN, APA, GOOG, and others. Monday began with some modest uptick in price. Nothing to worry about. Then Tuesday saw an additional rise in price. Still nothing to worry about.
By Thursday mid-day GOOG was up 6.5% for the week; APA was up 15%; COIN up 16%. Suddenly my OTM calls are in the money and the prices are still climbing.
This is where things went wrong. I let myself get emotional.
I did the math. I did it quickly and figured out that if the current prices held for just one more day the amount of “profit” I’d lose out on from the contracts being called would be greater than the cost of simply unwinding the contracts. So I unwound the contracts. I bought calls to close the open positions.
On Monday COIN was trading at roughly $65 a share. I sold calls with a strike price of $70 for $1.11. By Thursday afternoon the stock was trading near $75. Unwinding the contracts meant buying to close those $70 calls at $4.70. Ouch! The scenario for GOOG and APA was similar.
Then Friday happened.
COIN dropped back below $70 by end of day. GOOG was back below the strike price on my contracts. Only APA remained above my contract strike price at end of week, ending the week 18% higher than where it started on Monday.
The short version is: don’t let emotions control buy/sell decisions. I got greedy and feared I’d miss out on potential profit. I neglected to follow my most basic investment principal: establish an exit strategy for the investment before I invest.
If I had done nothing, only my APA contract would have been called. The strike price on the contract was $39. The closing price today was $42.65. The “lost” profit would have been $3.65 a share. I lost roughly $2.50/share unwinding the contract. So … yeah … I would have lost about a buck a share in potential profit on APA. But I would have saved myself 100% of the cost to unwind GOOG and COIN. And I would have saved myself the stress of Thursday.
Saving myself stress when investing is priceless.
Changes since last week
- I bought 100 shares of Rio Tinto (RIO). I like the dividend on this one (13%). As a bonus, the stock is up 11% for the week.
Stocks I’m watching:
- FedEx (FDX): This one took a beating a couple weeks ago. But the technicals look like it’s turning around.