MY WORST TRADING DAY
I began my trading career in a rented room in Vacaville, California while I was still attending college. I had bought a book from an ex cab driver that told me I could make a fortune trading options. Anyone could get rich! I, of course, believed the book and proceeded to set up trading screens in my room. A postal worker who brought home a different ugly girl every night and a cool older black dude that loved to drink boxed wine into the wee hours occupied the other two bedrooms of an old dilapidated house we were renting from a strict old lady. In that time zone, I could start trading at 6:30 in the morning and would trade options till about 9:00 A.M. when I had to leave for work at the local Circuit City.
I was an over confident rookie options trader who had borrowed $2,000 off a credit card for investment capital. I liked trading naked calls because I was sure I understood enough about the underlying equities to predict the market. The thrill of getting in and out at just the right time was my daily high but I was losing money all the time. Everything I bought went down...really quick!
I hated my job at Circuit City but that kept the money coming in to finance the early months of what I was confident would be a brief but spectacular career ending up on a beach in the Bahamas surrounded by beautiful women.
On the morning of my worst trading day, I put on my last trade as a rookie. I took a little position in $TGT. After a few bad financial reports Target Corp. was finding lower support levels almost daily. With lots of testosterone, but little market savvy, I added another $1,000 to my trading account off my credit card and bought $1,000 of the $45 April calls. After making the trade, I left for work at Circuit City.
I wasn't very useful to Circuit City. I would basically go to work and play video games and shoot the shit with my friends that worked there. If I was a savvy investor I would have bought Circuit City puts. I never did, of course, because I didn't know what I was doing.
When I arrived, I got pulled into the video department because someone hated their job more than I did and didn't bother to show up.
A thirty something couple wanted to check out the quality of a VCR. I grabbed a video cassette from the drawer under the register and popped it into the VCR. I think it had 5 heads or something. I knew nothing about it, just what was written on the fact sheet under the player. I was facing the couple with my back to the TVs and just rambled off what I had read.
As I was talking to them, I watched as their jaws dropped. I knew something was wrong when I heard a grunting sound. I turned around and saw a man and woman getting busy on the entire wall of TVs. I realized that I had put a damn porno into the VCR right as the "money shot" happened. I scrambled to hit the eject button, but it just kept playing. I ended up pulling out the power cord and apologized profusely to the couple.
They bought the VCR and the extended warranty.
Just as they left, the local Fedex guy walked up and handed me a letter from E*Trade addressed to my place of employment saying I owed $46,000. Not only did I have nothing left in my account, but I owed money! How was this possible? What had happened? It felt like the Fedex guy had walked up and punched me in the stomach. I was having trouble catching my breath. I felt like I had been living in my own mental movie and E*Trade had suddenly switched off the projector.
I was having trouble getting my bearings when I punched out for lunch and stumbled to my 1978 Datsun pickup. The wind was up and as I opened my door it was blown out of my hand and scraped into the car door parked alongside me. I guess it was no big deal but in my stunned mental state it seemed like an omen. I felt like my world was disintegrating before my eyes. I was remembering the people I knew who always had bad luck. Their new car would break down. They caught the flu every year. They would get robbed. Their tire tread would separate. As I looked down at the car next to me, I had the creepy feeling that I was becoming one of those people.
I left a note on the damaged car and drove the Datsun home for lunch. I immediately went in and brought up my E*Trade account. Wait! What's this? I'm not dead broke. I've still got my position in Target calls. They didn't wipe out my account. I had made a mistake and sold call options instead of buying them in a previous trade. I had lost my entire position but I still had my Target trade. There was no effective margin call.
It's amazing how quickly depression can turn to elation. I felt like a drowning man suddenly saved by his diving buddy's oxygen. I sat there staring at the screen as it blipped out the Target trades onto the chart. I was mesmerized by the screen. I felt like I was watching my heartbeats on a hospital monitor. I was still alive. A little beat up, I admit, but I was still alive.
Gradually it began to dawn on me that I was not watching my heartbeat but rather my Target call position marching on toward expiration. It was ticking up toward its resistance point for the second time since I went to Circuit City. I could feel adrenaline begin to seep into my system. At $ 41.50 my $3.00 call was still "out of the money". However, the trend looked good. Until, it didn't.
As Target eased toward historical resistance, it began to flatten, then dip and draw back. Fear began to assert itself in my gut and, apparently, across the entire market. Here we go for another roller coaster ride, I thought. If fear takes hold I'm headed for destruction. Sure enough, the traders started selling and Target began to lose elevation quickly.
I jumped over to my Real Time ticker and checked for news on Target. There it was. Two analysts had issued a downgrade. They believed the entire retail space was in trouble and since Target's new management had not yet put a strategy in place, they felt that Target's same store growth was at least two years away, if ever.
Depression clouds started to form up high in my brain. Where would support come in? Was I running out of time? Even if Target bounced off another support level, what would propel it back up? If the entire retail space was in trouble the news would have to be industry wide.
Depression was deepening into a sense of doom. If Target tanked, I was not only out of money, I was out of the game. I would be a lifer at Circuit City. I would drive a 1978 Datsun pickup forever. I would never get to the Bahamas. I would be doomed.
Target slipped into the 30's over the next two weeks and my $45 calls were worthless.
My sense of doom eventually lifted and was replaced by resignation.
I was resigned to never trade again until I figured out how markets worked. Reading a paperback was clearly not good enough.
I was resigned to stop letting my emotions control my conduct.
I was resigned to never bet more than 5% of my capital on any one trade.
I was resigned to develop a plan and to stick to it. I will never again let fork-tongued snake oil salesmen talk me out of my plan.
I was resigned, finally, to never endure that kind of pain again.