I Closed All My Remaining LEAPS CALL Positions At A Total Loss of SGD415K (USD306K)

I finally did it!

I closed all my LEAPS CALL positions over 2 days on 13th and 15th Dec 2022 at a total loss of SGD333.8K (USD245.6K). There were contracts that I could not close because there were no more buyers, such as those expiring on Jan 23, as the current value is already $0. I will write them off as they will eventually expire worthless. Together with the $81.1k loss that I cut in Aug and Sept 2022, the total loss that I have cut for my LEAPS CALL portfolio is SGD415k (USD306K).

What a year and rollercoaster ride it has been in this options trading journey for me. From being very confident that the market would eventually recover in 2022 when I build up a 453k LEAPS CALL portfolio one year ago to currently throwing in towel and losing most of the capital invested, it was a very humbling experience.

I started buying the dip in Dec 2021 with more expensive longer-dated CALL options (expiring on Jan 24), thinking that it would be enough to tide through the dips and pullbacks in 2022. When the market continued dropping and the war in Ukraine broke out, I was still in denial that things would eventually recover as the Fed would not crash the market knowing it was a mid-term election year. I was wrong as the rising inflation due to the various macroeconomic events such as the Ukraine War and China’s zero covid policy led to the Fed aggressively increasing interest rates, which caused the prolonged bear market of 2022.

I had many chances to avoid such a huge loss for this portfolio throughout 2022 as the market continued to create new lows after last November’s peak, but I held on to the faith that things would turn around eventually and the stock market would eventually rise to previous highs (or at least have a massive rally) due to midterm elections, seasonality and the year-end Santa Claus rally. There were a few rallies in March, June, August and recently November but after each one, the market went through a dead cat bounce and eventually crashed further.

Why I Eventually Choose To Close All My LEAPS Positions?

Firstly, all the economic events that could have turned the market have happened and they have not done anything to ignite the next bull market. Instead, things look bleaker than before. Even when data has shown that inflation is starting to fall, the Federal Reserve still thinks that inflation is not falling fast enough and will continue to hike rates going into 2023.

The effect of the interest rate hikes will be felt in 2023 as companies will continue to retrench and cut costs as demand weakens amid the recession. This also means that company earnings will fall (higher interest rate on loan = more debt), which then inevitably affects their share price. With the Fed’s continual tightening, the economy could go into stagflation, which is a double whammy of both inflation and economic stagnation.

With the share price continuing to fall and theta decay (time value of options contracts eroding away with every single day), my LEAPS positions which have already lost more than 90% of their initial value, will continue to fall and drop to $0 in 2023. Only a miraculous recovery where the stock market goes back to its All-Time-High (ATH), will there be hope for these LEAPS positions. Even so, theta decay will take out most of the contract value by then.

Lastly, if I were to cut my losses a few months ago, I would end up with a huge net loss after 10 years of investing and options trading. It was with the profits earned in the later months that I managed to break even on my overall investment as my profits over the last 10 years cover the total losses of the worst-case scenario of my LEAPS CALL portfolio collapse. That gave me the courage to cut the remaining 334k losses to reset everything.

I will be sharing the lessons that I have learned after losing more than half a million dollars (I also cut $135K of bad share investment last December) in the stock market over 10 years in a future post, so do stay tuned. If you have lost a lot of money this year, I hope my sharing provides some comfort that you are not alone and there is always a chance to turn things around if you do not give up. Take care and all the best!

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