12 Minute Read

Tales of a Technician: When Mickey Betrayed Me

September 16, 2015

By | 7 Comments

Tales of a Technician: When Mickey Betrayed Me

One of the ultimate thrills for a trader is arguably turning a losing trade into a winner. There’s nothing better than following a trade into the depths and emerging victorious. Humans hate being wrong. It’s annoying. It wounds the ego.

This is the reason why trading techniques that have the potential to turn losing trades into winners are so darn attractive. Sadly, there isn’t a cure-all for trades run amok but there are a few things you can try to salvage a loser.

…and a little luck never hurts.

To illustrate, allow me to share one such trade I experienced this past month on Disney (DIS). Over the past few years, the stock has been on a rocket ship to the moon. Every time I look at it, I curse the market gods for not having bought it at some earlier date. So I was quite happy to see the magical company finally get its comeuppance following August’s earnings announcement. The stock plummeted 9% on holy-freakin’-cow volume. I looked on with glee thinking my golden opportunity had finally arrived.

The stock started rebounding the morning of the down gap, so, not wanting to miss my chance, I sold September bull put spreads. With DIS trading around $111, I was able to sell the 105/100 Sep put spread for roughly 50 cents (number 1 in the chart below). For those otherwise unfamiliar with the bull put spread, I was essentially betting DIS would remain above $105 by Sep expiration. If it did, I would pocket the 50 cents. Since my risk was $4.50, the potential return on investment was 11%; typical for a high probability spread.

All went well for about 30 minutes, then Mickey Mouse came at me with a machete.

Disney tumbled over the rest of the day, then plunged the next morning; tagging my short strike ($105) in short order. There’s nothing more insulting than selling a low delta, way out-of-the-money put a month from expiration and having the stock smack it one day later.

Not wanting to abandon my beloved put spread, I promptly sold a Sep 110/115 bear call spread for 93 cents (number 2 in the chart). The additional credit received helped to hedge my downside exposure and effectively turned the trade into an iron condor. Now, I say promptly, but I mustn’t lie. I didn’t sell the call spread until DIS was already down at $105. …and since I didn’t feel like enough of a moron already, Mr. Market decided to carry Disney stock right back up by day’s end. So, naturally, my timing on shorting the call spread was horrible.

But don’t give up on me yet. I’m not completely inept. I hung with the trade, reasoning DIS would probably settle down and time decay would chip in to reduce the loss. Unfortunately, Disney took another dive on August 20, so I added yet another bear call – the Sep 105/110 for $1.03 (number 3 in chart).

By the time September rolled around, I was able to buy back the Sep 110/115 call spread for 10 cents; locking in an 83 cent gain per contract. Then, on 9/3 and 9/10, I added a 106/110 bear call AND a 105/110 bear call for about 50 cents apiece (number 4 and 5 in chart).

Source:OptionsAnalytix
Source: OptionsAnalytix

Basically, I’m short put verticals and call verticals with the short strikes at $105. This means the best case scenario is for DIS to drift back toward $105 near expiration.

Well, it’s expiration! Almost, anyways. And look at that, DIS is perched right at $104. Here’s the risk graph of my position:

Source:ThinkorSwim
Source: ThinkorSwim

The white line is the trade today while the red line is what the trade will be at expiration (end of day Friday). In case you can’t tell the trade is back to break-even. Huzzah!

Despite all the drama, harmony has been restored, the money has been returned to its rightful owner and all is well in the world.

Suck it, Mickey.


Tackle Trading: Financial Freedom is a Journey. Sign up now for a 15-day free trial.

Financial freedom is a journey

The Tales of a Technician series is brought to you by Tackle Trading.

Sign up now and gain unfettered access to all of the quality content and powerful Scouting Reports that our Pro Members enjoy for 15-days absolutely free with no strings attached and let us show you what your trading has been missing.

Sign up now for a 15-DAY FREE TRIAL #


Legal Disclaimer

Tackle Trading LLC (“Tackle Trading”) is providing this website and any related materials, including newsletters, blog posts, videos, social media postings and any other communications (collectively, the “Materials”) on an “as-is” basis. This means that although Tackle Trading strives to make the information accurate, thorough and current, neither Tackle Trading nor the author(s) of the Materials or the moderators guarantee or warrant the Materials or accept liability for any damage, loss or expense arising from the use of the Materials, whether based in tort, contract, or otherwise. Tackle Trading is providing the Materials for educational purposes only. We are not providing legal, accounting, or financial advisory services, and this is not a solicitation or recommendation to buy or sell any stocks, options, or other financial instruments or investments. Examples that address specific assets, stocks, options or other financial instrument transactions are for illustrative purposes only and are not intended to represent specific trades or transactions that we have conducted. In fact, for the purpose of illustration, we may use examples that are different from or contrary to transactions we have conducted or positions we hold. Furthermore, this website and any information or training herein are not intended as a solicitation for any future relationship, business or otherwise, between the users and the moderators. No express or implied warranties are being made with respect to these services and products. By using the Materials, each user agrees to indemnify and hold Tackle Trading harmless from all losses, expenses and costs, including reasonable attorneys’ fees, arising out of or resulting from user’s use of the Materials. In no event shall Tackle Trading or the author(s) or moderators be liable for any direct, special, consequential or incidental damages arising out of or related to the Materials. If this limitation on damages is not enforceable in some states, the total amount of Tackle Trading’s liability to the user or others shall not exceed the amount paid by the user for such Materials.

All investing and trading in the securities market involves a high degree of risk. Any decisions to place trades in the financial markets, including trading in stocks, options or other financial instruments, is a personal decision that should only be made after conducting thorough independent research, including a personal risk and financial assessment, and prior consultation with the user’s investment, legal, tax and accounting advisers, to determine whether such trading or investment is appropriate for that user.

7 Replies to “Tales of a Technician: When Mickey Betrayed Me”

  1. ChristianSisson ChristianSisson says:

    “All went well for about 30 minutes, then Mickey Mouse came at me with a machete.”

    I can’t stop laughing.

  2. Stephanie Stephanie says:

    Wow! What a story! The end result makes me push forward to learn how to get out of a hole. Thanks for sharing, Tyler!

  3. Avatar MingBai says:

    Impressive trade adjustment, thank you Tyler for sharing this wonderful technique with us! Just wondering when selling the #2 spread (Sept 110/115 call) followed by the #3 spread (Sept 105/110 call), how to make TOS treat them as two separated spreads? Usually when I try to sell the #3 spread after the #2, TOS would automatically buy back the 110 call from the #2 spread, and after the trade, the two spreads becomes one (Sept 105/115 call)…

  4. Avatar Tyler Craig CMT says:

    Hi MingBai,

    You are correct. Selling the Sep 110/115 call spread then adding a 105/110 call spread would turn the spread into one Sep 105/115 call spread. It doesn’t matter that they don’t treat them as two separate spreads. It wouldn’t change the potential risk/reward anyways.

  5. Avatar MingBai says:

    Thanks Tyler for your reply, I got it:-)

  6. Avatar Garrett Holden says:

    great post! What are you going to do now?
    IM GOING TO DISNEYLAND 😀

Leave a Reply

Chart Modal

Tackle Trading