Quick little post offering a teachable moment in a currently open position on my books.
I recently shared a naked put trade in $HA. Here’s the post from September 30 (unlocked for everyone).
With naked short options it’s incredibly important to follow my rules and discipline in honoring my stops. Naked short options come with theoretically unlimited risk exposure. So it is absolutely important to never let one of these trades get away from me.
As laid out in the post above, my line in the sand in $HA was a close below $25.50 which would trigger my exit at the open on the next trading day. Well, yesterday $HA did indeed close below that level — at $25.20.
Fast forward to this morning as I was preparing to exit my trade, $HA gapped $1.25 higher at the open, trading as high as $27 and holding it’s gains (so far)! At these prices, $HA is back into the profits zone for me. In a situation like this, I’m choosing to break my rules. I will not be closing this trade today. Instead, I am sitting on my hands today and I’ll continue to watch for another close below $25.50. If it happens again, I’ll likely exit on the next trading day.
Rules keep me out of trouble. But sometimes, the prudent and practical move is to ignore the rules. This is one of those times. Breaking rules is more an Art than a Science and I don’t do it often. Nor should I.
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