Holding tight through a 70% drawdown? Although the SPY trade above is not one of ours, it shows the risk, and then reward of trading without a stop. It uses real time quotes to illustrate the danger of trading options defensively, i.e., using a trade management strategy based upon a pre-determined stop. Any stop lower than 75% would have resulted in this trade being stopped out with a loss. Whereas stops have their place in limiting loss and/or locking in profits, they often work against the underlying decision making that went into initiating the trade in the first place. It is a tough trade-off. The alternative to trading defensively, with stops, is to trade based upon conviction, without a stop. My current conviction is that the March 23rd lows will be broken, and it will happen soon, certainly in the next 4-6 weeks. As an example and referencing that six-week time frame on the above SPY $300P trade, six weeks from January 31st the put went from a purchase price of $3.85 to a low of $1.17 one month later (-70%), then to $53.83 on March 12th (6th week). One more week (7th week) saw it reach $78.66, before pulling back to Friday's close at $51.07. I'm not suggesting the market will fall that far and that fast again, but the market is on the cusp of a 3rd Wave down (either a 3 or a C) and third waves are notoriously stronger and deeper than Wave's 1 or 5. Next week move at least some of your April puts into the May 15th expiration. In a couple of weeks we will reassess and consider June expiration. If you need something more specific, I'm accumulating the IWM May 15th $300P. Options Of Interest PRO Trades Premium Trades
