My Biggest Mistake This Week

I just put out a premium newsletter reviewing my trades and portfolio from this past week. The newsletter portfolio is up 6.18% to $10,617.50 so far in 2 weeks.

I detailed two trades on Tuesday. One of them worked out really well, and the other was a loss. Let me talk about the loss.

I sold weekly Tesla calls after the rally on Tuesday. Tesla was trading at around $628 when I sold $670 calls expiring Thursday for $2.20.

The trade looked promising at first, but later Tesla moved against me, and my position was a loss by the end of the day.

I set a 30% stop loss when entering the trade. It was triggered, and I realized a $198 loss.

I bought at the yellow arrow. The trade looked good for a while, but I ended up selling near the end of the day.

The ironic part of this trade is that I would have ended up making 100% because Tesla ended the week below my strike price of $670.

I could’ve pocketed the entire $660 premium if I had waited until Thursday at close.

But here’s why I never wanted to do that.

I would have been sitting on a massive loss on Friday morning. At $22 per call, my loss would have been 900%.

On a $660 premium collected, my portfolio would show a $5,940 loss.

Yes, if I would have just waited a few hours, the option would have rapidly declined and I would profit. But there would have been no way to know that. At best, it would have been a coin flip predicting if the option would expire worthless or not.

Would you take that bet? If things work out, you make $660, but if they don’t, you lose half your portfolio.

I never want to put myself in a position where I could blow up my account on one trade. That’s why I always use tight stop losses with volatile names like Tesla. If I’m wrong, I take a small loss. But I never want to take a big loss.

Also, keep in mind that a small account can experience a 100% loss on a trade like this. If I had only $3,000 in my account, my broker would have stopped me out and wiped my account clean way before I would have the chance to decide if I should wait until Thursday at close.

If your loss on a trade exceeds the total capital in your account, you broker sells for you and wipes your account to zero.