WalMart goes profitable.
When we started trading Walmart on January 6, we did not know how things would work out. We had a thesis, and it turned out to be quite wrong. In fact, it would have been hard to have been more wrong than we were. Within the first week, WalMart changed from a Bull trend to a Bear trend and we were down over $1500. That is not how we like to start out trading a new symbol, but the reality is that sometimes it happens. Anyone who tells you they can trade without working through losses of this type, is not being truthful. The critical thing is to have a plan from the start and to work through events as they unfold.
And they DID unfold in the worst way. It’s always a judgement call when something turns from Bull to Bear. Do you change direction immediately, or wait a while? Is it a short term event, or a new long term trend? There is no way to know, other than to let more time pass. We chose to continue building the position, and by week 3 we were down about $2400. Two weeks later, down $2500 and the Bear market for Walmart continuted. Wrong, again!
But then, our position started to make money because we understand the mechanics of building an option position, and the fact that Theta is earned every day and will eventually accumulate enough income to correct the loss. By week seven, we were down $1600 and and then at week 10 — less than $500. Our position had settled into an “income producing position” throwing off about $30 a day, every day, seven days a week. This always works as long as you follow certain disciplines when entering a new position. Number one factor to put the odds in your favor – NEVER trade options on a symbol that has a realistic possibility of “free falling”. We’ll discuss how that’s done in a later article, but it should be obvious that the chances of WalMart suddenly getting into really serious trouble are small. It’s highly unlikely that WalMart will move 20% or more in a short time period.
We are now at week 15 and the position is right at the breakeven point. It continues to earn around $25 a day in time decay. The position is relatively small but we will increase it this week. “Getting back to even” took slightly over 100 different trades over 4 months. You think options trading is always a quick and easy buck? You are wrong. It’s a business, it’s hard work, and it takes a complete understanding of the options market along with a great deal of patience. We usually trade one contract at a time, so most of out 102 trades were one contract each. A few were rolling transactions. Bottom line – the losses stopped in week 5 and we have now been consistently profitable for 10 weeks. We expect this to continue.
Stay Optioned, My Friend!