Trust or foolishness

I recall posting about the "pain" of holding a position through a period of loss in order to ride the planned rally on the other side.

Today is one of those days, as was yesterday. So I need to consider if this is pain or foolishness.

I am running only with trade service trades right now and all but one are long positions. This is not a move that I would have wanted to be long in most of my trades, but things happen.

As far as the market is concerned I feel (I know, not the best word to start a statement about trading) that with all the bad news the market should have sold off more than it did. In that light the positions that I hold are not doing too bad. Some are up since the last time I did a "price check" to see where I would be with regards to my total portfolio.

My trade in progress numbers show me giving back all of my gains PLUS a healthy bit on top should I close the trades now. The one thing that is tough about holding options instead of stock is also the thing that is good about it, if anything good can be gleaned from a losing position, the price scale of the option is so different from a stock. A 40 cent trade that is at 5 cents looks pretty bad... but if it is based on a stock that has gone from $12 to $8, it doesn't look so bad.

Option people say to buy intrinsic value, I have said so myself but found a problem or two with the plan. The thing is that if I call the move wrong I can lose the intrinsic value penny for penny when compared to the stock in addition to the extrinsic value. Buying an option that is wholly EV but has a strike very close to the stock price allows an increase in the price of the stock to drive the IV up almost right away while not losing too much EV. The downside, which is also the upside, is that the EV should be considered the total loss allowed on the trade and this one factor gives a sense of freedom to the trade as, if I am wrong, I have lost either way. If I am right I could stand to gain more on a return on capital basis.

I am re-considering my current position sizing as I was buying 2 and 4 contracts per trade. I should have kept it to 1 and 2 for now. I think I lost sight of the fact that a service is susceptible to the same losing streaks as anyone else, especially when going long while a market is undecided. I know that some other services I tried had abysmal results so even though these ones seem more in the profit. I am glad I was not trying to stick it out with one of the previous services.

This then ties into trading some else's plan. The trade services are recommending holding everything through. I note that they are not averse to holding a losing position through expiry, neither am I... given the right option price scale. So, how long to I hold them? That is the big question.

I am setting up my Optioneer account as I type. I sent in all the paperwork today and I am awaiting funding instructions. I have to liquidate the RRSP amount that I wish to start with and get it prepared to transfer. I dislike taking the tax hit on that but I am choosing to take it now in light of future plans to recoupe those tax loses.

Jeff.