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Why Two Prior Portfolios Failed (Incomplete)

 
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PostPosted: Wed Jan 30, 2019 5:19 am    Post subject: Why Two Prior Portfolios Failed (Incomplete) Reply with quote

I started option portfolios in 2003. However, before that, in the late ‘90s and early ‘00s, I was trading options here and there. In the late ‘90s, I recall buying $100 of ATHM calls (many symbols no longer exist) and selling them for $500 two hours later. Then, buying cheaper calls on ATHM again for $100 and selling them for $500 an hour later, all in the same day.

I had calls on RMBS a month before it rose from 70 to 470 in three weeks. I made huge gains, selling Feb 80 calls buying Feb 100 calls, etc. (although, the highest calls were 160s). However, if I started with the 140 calls at 1/16th or $6 each, and held till they reached the top, each $6 call contract would’ve been worth $33,000!, but I sold too soon trading RMBS calls, and quit, since the calls went up to only 160. There are many other similar examples, like the two $50 DNA calls I sold for $300 each in an hour or two, or the CMGI and PMCS puts (CMGI fell from $100 a share to $1 a share within a year), etc.. The late ‘90s and early ‘00s were really wild with volatility.

I decided to start an options portfolio in 2003 after trading IMCL calls. A friend opened an account with $5,000 to trade options. I lost a little money initially and he got scared and took all the money out of his account, except I talked him into keeping a $50 IMCL call. Over the next six months, trading only IMCL calls, I turned that $50 call into over $2,600 and told him this may be a good time to take the money out. And, the commissions were costly, because I made over 50 trades, buying on dips and selling on bounces (many times, the calls opened very high and then pulled back).

I started an options portfolio in 2003 with $10,000 (scaled-up to $100,000). It was very successful, making big gains over several years. It failed when the market had a “melt-up.” I was buying too many puts, since they were deflating, while the market was rising. I was anticipating pullbacks, which weren’t significant enough to sell the puts. The more the market rose, the more puts I bought. I lost a lot of money very fast. The second portfolio, started in 2007, failed in the same way, after many years of high returns. I didn’t learn my lesson. I felt bad, because I lost money in other people’s portfolios too.

The portfolio I started in March 2018 has been extremely successful in the first year, particularly since the December 24th low when my portfolio fell slightly below $200,000 and increased to $480,000 a month later. A volatile market is a forgiving market - it’s easier to manage to make gains or minimize losses. I’ve learned from my two biggest mistakes: 1) Avoid puts in melt-ups. 2) Stay heavy in cash in a low volatility market.

Incomplete...
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