percentage base effect

Aug21-W2: Rollover of bad trades can cause recovery

The last week’s disaster was quite something. I have had such experiences earlier also while selling options. After such events, I try to create scenarios which can bring some recovery. Even though I knew that the whole idea of this weekly option trading model would work only when I don’t let such disasters happen, I ended up making the same mistake.

As part of my earlier experience, I know that the next useful step towards recovery is to rollover the options and in fact, try to double down on number of lots. This step should be taken only when there is more than 100% confidence that the trade will go right. Even then, it is rarely possible to obtain complete recovery of loss.

Keeping all of the above in mind, I did go for rollover on Thursday. I had high hopes of a complete recovery but I remained extremely alert. I must have analyzed charts 20 times before finalizing the rollover decision on Thursday.

On Friday, I kept analyzing market behavior. Instinct and analysis told me that Nifty may not drop more from Monday. I thus reluctantly booked profit on Friday itself and made peace with whatever recovery was done.

However, I still wanted more. I wanted to squeeze as much as possible this week so that my P&L book can reflect numbers in greener color. This led to whipsaws as I kept adjusting strikes. Nifty’s direction and volatility was all over the place. Even though I had predicted this, my strikes were problematic. I just did not have it in me to take risk and kept paying adjustment brokerage.

Anyhow, the week’s recovery is ok. Rolling over turned out to be a good decision. This only happened since I was very alert during market hours. This alertness was not there for past 3 weeks during which I incurred drawdowns and the humongous loss. Staying vigil helps and hopefully, profits in future weeks shall quickly take overall CAGR to above 15% and beyond.

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