Options Lose Money

Can someone please help regarding how I bought Oct Puts for Goldman Sachs and the stock price moves my way dramatically down but I lose money on it? I can't figure it out which is fustrating. Thanks for your help.

When did you buy? Friday? What strike? What was the price of the stock when you bought? Did you buy out of the money? What chart did you use to buy? Don't know if I can explain but can try...usually BCT is best at this one.

I use to trade GS but got burned real bad and haven't touched it since.

my guess is that you havent been patient enough yet

BTW why did you buy a PUT so far out in time? Gary's 1-5 rules said don't buy PUTs furher out than 1 month. Just wondering....

To the best of my knowledge Gary teaches to buy at least 5 months of time in Options trading.

I also had the understanding of buying as much time as you could afford on call options and current month's on puts if early in the month or the next months.

I've always struggled with some of Gary's info. On the one hand, with options, he talks about needing to be "right, right now" yet at other times he talks about how much "you can stomach" in terms of risk. Certain people on the CD's say that if the option isn't going their direction after 2 ticks, they're gone. Gary talks at other times that if it's not headed your direction in 6 market hours, consider getting out. Maybe some of you seasoned traders can address this from your perspective. Buying 5 months out in time certainly gives plenty of time to be right, but doesn't that position move against you often in the beginning?

Okay I went and got my GW manual for 1-5. This is 1-5 only so I have no idea what he says for any other class.

PUT RULES #5 ..."Buy put options that expire one month beyond the month you are in" written by Gary Williams

The stock market is designed to go up. Our economy is designed to go up. (That info comes from all the books GW asked us to read) According to my notes beside the #5 rule I have written "the stock market goes up 78% of the time and is down 22% of the time".

Call options can be bought 5 months (1-5 rules) out at least.

This is only for me but I have never nor will I ever buy a put longer than the following month I am in although an AAPL put bought October 21, 2012 would have been really sweet.

As I said though this rule applies only to 1-5 class.

GW does say If the option has not started to go up within 7 market hours consider getting out. He also said that if it is going against you get out now. I believe what he is saying is there are times your option will be up then down and then up and then down and then up and then...well you get the picture. At this point I think it wise to look at your charts and if you still see a Put remain in the trade but if the charts have changes GET OUT.

Now those of you who have taken classes higher than 1-5 and Advanced class may have different rules as far as a Put goes but those are the rules I follow because I don't want GW screaming at me.

You know we ought to make a GW bobble head that screams at us...then we would feel right at home!



Edited 1 time(s). Last edit at 06/20/2013 06:40PM by Darcy2.

I have reached a decent amount of success by trading small charts. I will release some my golden rules of how I trade. First of all, if you are not interested in trading from small charts, you might want to find the next post because at this point, I almost never place trades by using big charts. I make a considerable amount of money by using small charts. I trade about 3 to 4 times a week and can count on one hand how many non-profitable trades I have had within the last 100 trades or so.

First of all, I will NEVER wait 7 hours for a stock to move in my direction or against me (small or big charts). As I stated earlier, I am an "in and out" trader. I am usually in and out within 2-3 hours. My profits are usually 25-50%. I trade 2000-$3500 positions. I am not trying to sell anyone on my style but to earn $500 to $1000 in the course of a couple of hours 3-4 times a week is pretty good.

If you use solid signals as part of your trading strategy, you should see a stock move in your direction within an hour. Again, sorry, but this is my humble opinion. If it does not go in my direction within the first 30 minutes, I am out with a small loss, gain, or break even. I look at these trades as failures. There is something I did not see, did not follow my golden rules, or something happened in the news that I missed. When trading from a 13 charts as decision and 55 as the trend, I cannot afford to be wrong for very long. Below, I am giving some solid indicators that should be easy to follow, but most importantly, if they are in alignment, I am almost never wrong when making a trading decision.

I look for a a break on previous day's high or low
NAS and Dow must be going in the same direction
Futures must show consistent ticking in direction of trade
The market is going in my direction and showing strength in the direction of my trade
I have a clear "E" developed on my decision chart and
Money Flow is going in my favor also between 80 and 20 ( optimal is close to 70 and heading down or close to 30 and going up)
The trade is below the 8 MA
The ADX is continuing to rise on the 13. If it is going down on 55, but all other indicators are positive,it is still a trade, but will be shorter.
The trade is within my trading range (just broke a support or resistance area)
RTT is either neutral or green on the trend
FP/HRFP is present on the 13 or decision
It is a sure trade if my indicators are signaling between 10:00- 11:00. My favorite candle is the 9:56 or 10:09 off the 13.

Please remember, all of this is based off the 13 as decision and 55 as trend only. I have recently incorporated a 5/8 chart for a more precise entry.

Go take a look and backtest this approach. I have tested this strategy over 100 consecutive times in practice and my results were nearly 100%. You will be amazed how accurate your small chart trading will become. For me, the advantages of this strategy are, the approach stands strong n any zone, and there is a trade within my 10-12 stock basket EVERY SINGLE DAY!

I hope this helps,

Rookie30

@Rookie30: thank you for taking the time to post such a detailed description of your trading method. If you don't mind, would you post the stocks in your basket that are working with your method?

These are stocks that will work-depending on the time of the season. For example, FOSL is a stock I trade very heavy before the holidays. I typically carry trades overnight when trading this stock during the Thanksgiving and Christmas holiday season. WYNN works better for me early spring/summer. CF is a stock that responds well to the 8 MA. If it is above I ride it off the 13. If the bands are tight or candles are very small and flat accross the 8 MA, I watch. I do well with each of these stocks and few others when using my strategy. This time of the year is very nerve recking. I watch my indicators very closely and trade on short moves. I am getting ready for the fall/winter.

AMZN
CF
FOSL
FB
NFLX
DTV
LNKD
FFIV

To understand why options lose money even when there is a big move in the direction you expected, you have to understand implied volatility. Because markets are efficients, options will take into account instances where there will be large price moves (i.e. earnings announcements) and their prices will be inflated by the high volatility expected to be caused by the event. When the event actually happens, options will deflate like air being let out of a balloon.