Roku done been a bad, bad boy. Of course, his dance with the dark side wasn’t entirely unanticipated. What, you think a 476% year-to-date gain is sustainable? No, son. The piper always gets paid.

In other words, this correction was coming one way or the other. The wickedly overstretched conditions demanded as much. Like Icarus of old, hubris pushed Roku a wee bit too close to the sun.

But what was undoubtedly hidden from view was the speed and depth of Roku’s crash. Rare is the bird that can plunge 41% in two weeks. Rather than commiserate with the bounty of bulls maimed and wounded, let’s take the high road and identify the lessons learned (or re-learned) by this whole debacle.

Your Last Defense

I regret to report that my ROKU bull puts died in the sea alongside Icarus. Correction – they are dying, not dead. But I’ve all but written them off. The wailing and bloodshed tell me all I need to know about their fate. I suppose there’s a sliver of hope that a well-timed resurrection awaits, but I’m not holding my breath.

So, as one who felt every blow to Roku on the way down, what have I learned? What eternal lesson has been etched into my brain?

Position Sizing is Invincible

Quick definition check in case you’re new here. The term “position sizing” refers to how much money you’re risking with each bet. It is the art of determining the “size” of each trade or “position.” Got it?

Proper position sizing is your last and ultimate defense. Where other risk mitigation tactics fail, it succeeds. I used hedging and scaling as my first two protective measures. Had ROKU fallen 10% and rebounded or even 20% and then rallied, I would have been fine. But 41%? Nah. Too much. Too powerful. I can be lower case wrong and still salvage something but upper case WRONG? That’s a fire that melts right through my hedging and scaling.

Proper position sizing is the flameproof underwear that you put on first. But for those, I’d be burnt to a crisp right now.

Episodes like ROKU remind us that literally, anything can happen in the market, particularly with individual stocks. Trading is like walking through a minefield. Risking a large percentage of your portfolio in each trade is like jumping around in clown shoes. All it takes is one ROKU and you dead.

I prefer to tiptoe softly.

With ROKU, I scaled, hedged, and scaled some more. But, ultimately, the only thing that saved me was the sizing. Today as I all but declare defeat, my loss stands at 1.1% of my portfolio.

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