The one mistake all beginning options traders make…
Well, I thought I knew what I was doing with options, at least in terms of the buying & selling and placing orders. I paper traded for four months and doubled my money prior to making any real money trades.
With the psychotic market, The fact that I didn’t lose my entire stake was pretty impressive for the past four months.
So as I was writing my last post about VIP I was shocked when I looked at my account balance in order to calculate my risk for that particular trade. While my liquidating value was pretty much where I expected (about $4300), my actual cash balance was negative (!) $3000+ dollars!
Would anyone like to guess what happened? All the information you need to figure it out is in this blog’s recent posts, but it will take an experienced options trader, and likely one who has made the same mistake that I have, to figure it out.
I’ll post the answer to the riddle in one of my next updates!
Suzanne @ January 15, 2008
WTF?! I’m really looking forward to the answer to this riddle, because I don’t know squat about options. I envy your courage trading options in this market!
Great, at least I can help someone else from making the same mistake! Don’t worry, it wasn’t a costly mistake (yet), but the potential was sure there. I’ll post about it later today or tomorrow when I get my courage up.
Wow, sorry to hear about your snafu! At least you learned something new, and hopefully it didn’t come at a disastrous price (did it?). So, I’m a little slow on the uptake here, but are you out $3k now? Or are you still hanging in there with fingers crossed?
HI Reese. If I liquidated today, I’d only be down a few hundred dollars. The negative 3K is the amount that I am on margin to have purchased the 100 shares. So I am currently paying intersted on that 3K, but I keep a clos eye on my liquidation balance. I am at least ot the point where I could liquidate adn still have money in my account to trade options, albiet with even less margin for error. As it is right now, I can’t even place a simple call option trade b/c I am extended on margin. You’re right, it is a lesson well learned, at a terrible market time to learn it!