The Best Lessons are Always the Hardest

They say that the best lessons are always the ones that are learned the hardest.  I have experienced that numerous times in my relatively short life, whether it be in politics, school or business.  I learned another valuable one today in my trading activity. 

Yesterday, I purchased a few option calls for TXN at the $27.50 strike.  TXN was up brilliantly yesterday and I had already made great gains in a very short time, based on positive market activity.  However, as a result of the company’s earnings announcement  yesterday, I was confident the gains wouldn’t stay, especially with more negative news and a down market today.  So, I did what any smart trader would do with such a position and I put a stop/limit order to preserve my losses.  I put the order in last night at about midnight, as I was doing some last minute account touch-ups before bed. 

Whether I was just tired or simply failed to pay adequate attention to detail, I don’t know.  Suffice to say, I screwed up, because I put the stop/limit order in incorrectly.  So, as Texas Instruments’ stock tumbled today as a result of negative earnings news for a number of tech companies and just a generally bad day on the market, I rode the losses all the way down to its’ closing at $28.82, watching my options decrease in value by slightly more than 50%. 

The moral of this story:  paying attention to even the smallest of details can impact 50% in the red or 50% in the green, and will typically do so in a very short period of time.  Needless to say, this revelation can be applied to pretty much anything in life, but with trading, details can be relentless. 

The one redeeming factor here is that this is a good example of why I like to play options, because while it just eats me up to see 50% losses (or 5% losses for that matter), dealing with options allows the overall risk to be mitigated, rather than if I purchased the actual stock.  I also have until May 17th until the options expire, so hopefully there will be some opportunity for increases in between now and then.  Still, I hate seeing losses, whether it is five dollars or five thousand dollars. 


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