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AlbertJayNock

Damn

Damn damn damn. Double dog damn!

Yesterday I said I was "kicking myself a little" for selling my DIA put too early. Today I am kicking myself a LOT. The Dow is down 240 points and if I had hung in there I would be up $145 more today.

Normally I am not hard on myself for being too risk averse. Not for any silly self-esteem reasons, but because beating up on myself over being risk averse might lead me to take foolish chances more often than not. For instance, I had an opportunity loss when I bought google in the IPO and got stopped out. If I punished myself for that, I might stop putting in stop loss orders and lose a lot of money that way.

But this was different. My original plan was to stay in until a month before the expiration of the option (which would have been the third Friday in November), as recommended in Guy Cohen's Bible Of Option Strategies. But when I saw a chance to take a small profit and avoid a loss, all that went out the window. I broke two cardinal rules of trading...I didn't let a winner run, and I didn't stick with my trading plan. Bad babydoc, BAD! If I was in better shape, I would make myself drop and give me 50 push-ups.

The lesson here is that there are different kinds of risks. There are the risks you avoid because if you took them all the time, you would lose money. And then there are calculated limited risks with potentially large upsides. The former should be avoided, the latter should not. Especially considering that there is NOTHING you can do with your money (including doing nothing) that is risk-free.

I'm not sure what I'm going to do now. I feel sure we are in a bear market, so I might try to pick up some puts when we have the inevitable sucker rally. At least I am farther away from losing $1000 than I was at the start of the week. But I would be a lot farther away if I had just shown a little discipline.

UPDATE:

The Dow closed down 366. TRIPLE dog damn!

Comments

sucker rally! That's what I was trying to think of- a nervous nellie in a sucker rally! teeheeheehee.