What Do Head Lice, Root Canals and Sick Dogs Have to Do with Options Trading? Read On…
Having just finished another season of two kids playing soccer seven days a week my wife and I rented a house in the mountains of North Carolina for a little rest for our family. There would be no practices or games and certainly no iPads or texting. Instead, the plan was to sleep in until at least 7, board games, hikes and a simple weekend of relaxation.
Unfortunately, as usual life had other plans for the Mintz family … and the next 48 hours were NOT relaxing!
To start with the GPS took us up the wrong side of the mountain to get to our rental home. And by the time we recognized this error we were so far up the mountain that we needed to drive an extra hour to get back on track. Of course, at that point in the late afternoon/early evening the sun had gone down, and we were driving in the pitch black slowly crawling down, and then up, the one-lane road making hairpin turns. Tensions were high in the Mintz car!
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Next up on our weekend of relaxation we found out our friends’ son who was joining us in the mountain house had a tooth that was in desperate need of a root canal and was causing him incredible pain. The poor six-year-old couldn’t eat without shedding tears. Thus, our friends’ hopes for a weekend of peace and tranquility were destroyed by angst over their son’s pain.
Then, shortly after we finally arrived, that same family’s dog had diarrhea all over the carpet of our rental home … twice! So, the first hour of our arrival was spent cleaning the mess from the carpet.
It couldn’t possibly get worse … until it did.
The next morning my wife found lice in our daughter’s hair!
And while we have dealt with lice in the past, and weren’t in a full panic, very quickly we realized that we couldn’t simply take our daughter to the lice treatment center like we had in the past to have a professional deal with those nasty critters. Instead, my wife and I spent four hours on Saturday in the bathroom combing through my daughter’s very long and thick hair looking for bugs. Yuck!
What does this all have to do with options trading, you might ask?
First off, I felt it might be therapeutic for me to write about this horror show of a weekend so that I could move on.
But also, like the failed Mintz family weekend of rest and relaxation, rarely in investing and trading does a plan go exactly as planned.
Take, for example, a recent call buy in Taiwan Semiconductor (TSM) I recommended to my Cabot Options Trader subscribers. At the time of our buy the market was breaking out to new highs, TSM stock looked fantastic, and option activity was bullish. This was a near perfect set-up! And because of this I recommended a call buy, and the next two days the stock rose to new 52-week highs.
Unfortunately, the following three days TSM and all semiconductors fell as new rising U.S.-China trade tensions again shook the market. My dream set-up was quickly in trouble!
Fortunately, we stayed with the trade as options activity went from bullish to wildly bullish. This indicator of hedge fund and institutional buying led me to believe odds favored the stock rebounding.
And much like a roller coaster, trade tensions again eased and TSM recouped those initial losses, and broke to new 52-week highs. Suddenly, a position that appeared to be in a bad spot was now at a profit of approximately 130%.
So, what are the lessons learned from this vacation gone wrong and managing a call position? First off, my next vacation needs to be without kids! And second, when managing a trade sticking with the system regardless of short-term movement usually leads to success.
Jacob Mintz is a professional options trader and Chief Analyst of Cabot Options Trader. He uses calls, puts and covered calls to guide investors to quick profits while always controlling risk. Beginners and experts alike can gain from following Jacob’s advice.Learn More