After going through the great reset at the end of 2022, where I cut over 400k of losses in option contracts, I had looked forward to rebuilding my portfolio in 2023. However, as it turns out, it has not been smooth this year.
My total loss for 2023 at this time of writing is -$6.8k and my net total loss in options trading since starting in Feb 21 is -$32k. To make matter worse, there is still a substantial amount of unrealized losses in my open contracts, which will increase my net total loss if they are realized. So, what went wrong and how can you learn from my mistakes so that you will avoid these pitfalls and safeguard your capital?
Long Travel Plans
I made plans to go on a long holiday with my family in 2023. The ideal scenario that I had envisaged was to earn a sideline income from options trading to cover part of my holiday expenses, as I had taken a break from work and was not earning any income. As it turned out, I accumulated more losses from option trading during this period 😦
Disrupted Trading Hours
Before I travel, the US stock market opens at around 9.30pm or 10.30pm Singapore time. By this timing, I had finished most of chores and tucked my child to bed. Therefore, I could focus on trading, monitor the stock prices, plan my trading strategies, all using my laptop.
However, based on where I am currently, the US stock market opens at 2.30pm and usually at this timing, I would be out traveling, with minimal time to monitor the stock prices and the market’s reaction to economic news (which is usually released one hour before market opens). I couldn’t bring my laptop along and had to rely on the IBKR app to place my trades. Also, there is less time for me to watch my favourite YouTube finance channels to get more insights on the market trend.
Focusing On One Source Of Info
Sometime in late 2022, I joined a paid discord group to get access to the trades of the guru that I followed because I think he is obsessed with technical analysis (TA) and most importantly, he is quite spot on with his predictions of the stock market. It did not started well initially but I followed his advice and managed to recoup my losses in December. As I would be traveling for 2023 and have no time for financial education on YouTube, I thought I might as well grab all the info I could get from this discord channel as he does daily analysis on the stock market.
In 2023, he was very confident that the market would crash sometime in 2023 and gave many reasons to support this prediction. He mentioned that people would move inflation fears to recession fears and that there would be an earning recession coming out in Jan 2023 where company would report bad earnings that would cause the market to fall. He even predicted that on 17th March 23, the market would see a new low.
I was so convinced regarding his prediction that I started to build bearish positions at the start of the year. By 10 Jan 23, my Bear PUT spread positions have already reached $38.5k, all expiring on 17th March 2023, the same expiration date that he placed his bearish trades on.
For my Covered CALL contracts, I did not close any of them even when I could take profits on them as I was bearish on the stock market and that share price could drop further. When share price drops, the premium of CALL contract drops as well, so I can net a bigger profit when I buy to close these contract.
The market started to rally in the whole of January and the guru shared that he would be chasing that dead cat bounce. I followed him and missed out on capturing the upside for some of the stocks that I liked to trade on, such as Tesla and Nvidia, which went on to double their share price within a month. At the same time, the premium on my Covered CALL contracts increased so much that I would make a huge loss trying to buy them back to close. If I had closed my previous positions, I would have collected a higher premium by opening (selling) new Covered CALL contracts when the stocks were trading at a higher share price.
The FOMC Meeting Crash That Never Came
The guru then predicted that the first crash would come after the FOMC meeting on 1 Feb 23, but that did not happened. Many folks were disappointed that his super confident prediction did not came through. Then, came the stunner that he was ready to sell off all his positions and take the loss as he felt that the market was preparing for the next bull run. He eventually sold off his positions and many who had followed him had lost a lot of money. I too closed my positions in QQQ and SPY and took a loss of $3k.
As the stock market rallies, all my vertical spread positions dropped hard in premium price and I accumulated huge paper losses on those positions. I rolled most of these positions to a later date but as they are all debit spreads, I will need to add more capital in exchange for more time, for the crash theory to materialize. I also other spread positions and options contracts not going my way in a volatile Feb and I closed them at a loss.
Come March, I was hoping to slowly build up my trading capital again through the small wins. Just when I thought that things couldn’t get worse, I went to do something crazy and lost a huge sum in a single trading day.
I Did Something Crazy & Lost SGD3,422 (USD2,535) In A Single Day
After this episode, I learn not to be over reliant on one source of info or trust a guru religiously, no matter how good he is, as he may be biased or can get it wrong totally.
Also, the most difficult situation to trade is when there is no clear direction or trend. In 2021, the bulls won big while the bears won big in 2022. However, in 2023, it has been volatile and rally in either direction has been short-lived. It may just turn out to be a sideway market where both bulls and bears get slaughtered off their option contract premiums.
This, it is important to be prepared for both outcomes and have safe investing/ trading strategies to preserve our capital, even when we are wrong on the direction. Otherwise, the more we invest/ trade, the more we lose.
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