Jul 02 2008
My stack of puts is on fire
I am staring at my trading account and I just don’t believe it. A few days ago I said I wanted to sell my IWM 72 and short an IWM 68, but I didn’t actually do it.
The IWM July 76 I paid $2.92 for is now worth $9.125. If I had known they would triple, I would have gotten a whole mess more. Don’t forget this ain’t chump change. One contract controls 100 shares. Quoted option price is per share.
What I can’t believe is how much short exposure I have right now. With options expiration coming up in 2 weeks and given that all my options are in the money, I am effectively short almost 300 shares of IWM and 300 shares of QQQQ. With IWM around $77 and QQQQ around $45, I am effectively short $36,600 worth of stockand the scary thing is that my trading account is a 4 figure trading account. When my puts were out of the money, my short exposure was roughly -150 IWM and -150 QQQQ. My short exposure increased as the market tanked even though I did not buy or sell any options. I blogged about this effect back in March.
Let me tell you something: I am overleveraged right now. This is not a smart thing to do. I am so short right now that if I went outside and walked on the sidewalk and a girl went by, I’d be able to look under her skirt.
I keep telling myself to dump my puts but I can’t get myself to do it. The VIX isn’t at panic levels yet. I want to see this sucker over 30 before I dump my puts. There is no bottom in the market until there is fear and people start dumping stocks at any price. That hasn’t happened yet.
Watch the unemployment come out tomorrow morning and wipe out half my profit instantly.
[...] a few days later. Not this time. While this 6% setback is nothing compared to my last blowup due to overleverage, this mistake deserves at least a 3 week [...]