Last update: August 2021
Welcome back everyone for the next edition of “Notes from a Newbie.” I wanted to start off by saying thanks for all the support you all have shown me as I share my trading experiences with you. My goal is to hopefully prevent some of you from making the same mistakes that I have made. If I manage to help just one of you that my efforts here have been successful. So speaking of mistakes, as promised, let’s take a look at my first trade in my newfound profession. We will call this “X marks the spot.”
So here I am fresh off the 3 day Legacy seminar and ready to get this ball rolling. As explained in the last blog, my portfolio design was going to lean cash flow heavy. All I needed to do at this point was pick the stock that I was going to kick-start this journey with. To be honest, after spending 3 days with Matt and listening to his bullish bias on steel, I knew leaving there that U.S. Steel was going to be the one. So my mindset going in was to start small and test the waters. Just get the pinky toe wet to make sure the temperature was just right. Unfortunately, I tripped on my ego and fell straight in, but we will get to that later.
On January 19th I bought 100 shares of U.S. Steel (X) at $39.03 and immediately sold a covered call at a .40 delta with a credit of $1.86, just as we were taught. I subtracted the credit of $1.86 from the $39.03 to get my break-even or stop-loss price of $37.17. And just like that I was off and running! The stock continues to climb for another week leading up to an earnings announcement on January 31st. This would be my first taste of the volatility of earnings season and my first lesson of trading into earnings at least from an emotional standpoint. See over the course of the next 5 days I would watch US Steel go from $41.66, blow through my “notional” stop loss of $37.17, see a low of $30.87 before settling at $33.97. That is a 20% drop in a 5 day span, and an emotional week that I would eventually do all over again because I didn’t quite learn my lesson the first time. But that is for a later time. So you are probably wondering why I would allow this to happen, right? The rules clearly stated to get out at the breakeven point, so what the hell was I doing? That is a question I asked myself all the way to the bottom. The only rationale I could play was that it had to break the last major level of support. It was still making higher lows and higher highs, so this appeared to be just a hefty pullback, at least in my mind.
So I continued to hold, it confirmed my rationale, pivoted, and ran higher. Whew, that was a close one! And then the fun began. US Steel went on an epic 6 session rally that was capped off by an 18% jump on an announcement the President would impose tariffs on steel and aluminum. So in a 2-week span, I have gone from the far left to the far right on the emotional scale. What do I do now? We never talked about this scenario in class! Steel is going to go to a million! I have to do something or I will lose out on $500 on the share price alone! This is where consulting with a coach should have been my number 1 priority. But I am hard-headed and know better, and decide to roll my covered call that, oh, by the way, was expiring the day of the jump. So I rolled it to an April 16th expiration and took a $200 loss on the option but made up the difference on the move in the stock. So in my mind at the time, no harm no foul, but I will let you be the judge.
At this point, the stock bounced around in what appeared to be a high base consolidation for a few weeks until the President decided to exempt every country except a small deserted island in the Atlantic Ocean. And looking back now, this is where the decline started. Over the course of the next 3ish weeks, US Steel would drop from $44.91 to $33.52, essentially putting me right back where I was in February. I rolled the call one more time on 14 March before the stock settled and started heading back up. The call eventually expired on 13 April and I will leave the follow on story for the next time. So what do I want you to take from all of this? Well here was the lessons that I learned:
Lesson #1: Rolling Calls is stupid.
Rolling calls is stupid, and has yet to work in my favor. I profited $202 dollars on the calls in a 2-month span. The original call was sold for $186. If I would have let the call expire got assigned I would have pocketed the maximum ROI. I would have essentially won! I could have let the dust settle from the tariff talk and re-evaluate the situation. I then could have re-bought the stock at a much lower price and sold another covered call and doubled my overall profit. I also ended up taking a $352 loss on the stock price at the time the option expired. So you do the math, $202 – ($352). That’s right, 2 months into my journey with my first stock I was negative $150. Could be worse, but if I got out of my own way, would be a lot better.
Lesson #2: Emotional decisions are almost always bad decisions.
I let greed influence my decision to roll and fear influence my decision to sell. If I followed the rules I would have lost nothing at my breakeven point, and if I would have followed the rules after breaking the rules I would have had a max ROI at expiration. Moral of the story is follow the rules!
Lesson #3: Don’t make decisions without knowing what you are doing.
Doing nothing is sometimes better than doing something stupid. Consult the coaches, they are there to help. I would be willing to bet they would not have given me the advice that I ended up doing.
Lesson #4: Learn from your mistakes so you don’t make them again.
I have no problems admitting that I was wrong. But I will be really embarrassed if I ever have to admit doing this again, I haven’t and I won’t. I have moved on to other mistakes, or other “lessons” as I call them. I am paying for education in an unorthodox manner, I will jump on this grenade for you guys/gals just don’t jump on with me.
You can refer to the chart below to see where and when I made the trades that I made.
Tackle Trading Resources on Covered Calls
Continue learning about this powerful options trading strategy: the Covered Call. Tackle Trading has all the resources you need to MASTER this strategy like a PRO.
Covered Call For Beginners [Free Articles]
Learn How to Repair a Covered Call Gone Bad!
Join Coach D for an in depth look at a dynamic Covered Call repair strategy on $GMCR.
Options 101: How to set Basic Stops on Naked Puts and Covered Calls
In this video tutorial, Coach T walks the team through how to set a basic stop on a covered call or naked put position.
Options 101: How to find the perfect Covered Call Candidate
In this video tutorial, Coach T from Tackle Trading walks through a research session for covered calls.
How to use the Theta Research Tool to find the best stocks for Cash Flow
In this video tutorial, Coach Matt goes through the latest edition of the Options Research Spreadsheet explaining how to use it to find the best stocks to cash flow.
Options 101: How to Add a Protective Put to A Covered Call
In this video, Tackle Trading’s Coach Tim explains when, how, and why a trader would buy a put option on a covered call position.
Tales of a Technician: The USO Covered Call Nerve Strike
I seem to have struck a nerve with my call for a reverse split in USO. And that’s a good thing.
Video Tutorial: How to Repair a Covered Call to Reduce Risk
Watch and learn as Coach D demonstrates how to roll a covered call down and out to offset risk and bring in more premium as he repairs a protective call write that has traded below the strike price and break-even price point.
Tales of a Technician: Theta and Covered Call Management
Just when I think I’ve exhausted my inventory of covered call insights I stumble upon yet another blog worthy concept. Today I’ll shine a light on how to identify the remaining profit in your trade, an essential skill for covered call management.
Tales of a Technician: Covered Calls: Weekly vs. Monthly
With the advent of weeklys options the choices facing option traders has multiplied ten-fold. But it shouldn’t be overwhelming.
How to Pick a Good Covered Call
In this article we will breakdown the philosophy, construction, and management of the Covered Call cash flow strategy.
Tales of a Technician: Your Covered Call Questions … Answered!
Listen up you covered call lovers. Today I’m tackling some common questions on how to get the most out of your beloved buy-writes.
Trade Journal Series: How to use the Theta Research to find Covered Call candidates
In this video tutorial, Coach Tim Justice teaches how to find the best candidates to trade the Covered Call options strategy using the Theta Research tool.
Tales of a Technician: Covered Call Alternatives for IRAs
How to leverage an IRA account by selling covered calls on long-term call options (aka LEAPS) instead of stock? Read on.
Options Theory: Collaring Earnings
Earnings season is upon us. Whether it’s a straight stock position, you’re holding for the long run, or one that you’re selling covered calls on there is a straightforward way to limit your risk.It’s called a collar.
Options Theory: What a Covered Call Trader REALLY Wants
I think I could write about covered calls and naked puts every single week and still have plenty to say at the end of the year.
Options Theory: Picking the Right Stock for Covered Calls
I received an email the other day from a trader that bought a few stocks and has been selling covered calls against them. He had questions. I have answers. Here we go.
Options Theory: Combating Volatility with Covered Calls
Nothing like a monster “V” shaped reversal to get the juices flowing, am I right? Count me among those suffering whiplash over the market’s death-defying whoops and whirls of late. Yesterday was particularly annoying for those short delta toting traders like me.
Tackle Today: Do you trade Covered Calls?
Last update: August 2021 ≈ Cash Flow and Growth ≈ I put a poll question in the clubhouse recently asking the Tackle Trading community a simple question: Do you trade Covered Calls? If you haven’t answered the question yet, you still can HERE. Of the 5 potential answers, the breakdown was interesting. 38% said YES
Tales of a Technician: When Covered Calls Move In-The-Money
Traders have all sorts of rules and guidelines for managing covered calls that move in-the-money.
Tackle Today: Meet the Covered Call
The Covered Call strategy is an old friend of Tackle Trading. This strategy is so cool that we can talk about it every single day and still come up with new ideas.
Tackle Today: Covered Calls for Cash Flow
One of the most popular techniques in the equity and options market is the Covered Call. A Covered Call involves the purchase of at least 100 shares of stock and then the sale of 1 call option against that stock.
Options Theory: Tips for Buying Puts with Covered Calls
Let’s talk about proper strike price selection for covered calls and protective puts.
Portfolio Protection For Beginners [Free Articles]
Long Put: IWM or RUT
In this video tutorial, Coach Matt walks thru how he has been handling the additional macro risk in the market by trading Long Put options on the IWM.
How to add Insurance to your Portfolio
In this video tutorial, Coach Matt takes a look at different ways to protect your portfolio accounts when the market goes south.
Protecting Your Money: Create your own Personal Gold Standard
Everyone invests. Everyone has money. Currency is a form of investment since the gold standard was removed from the currency system.
How to Protect Your Retirement
Coach Matt from Tackle Trading looks at how passive and active investors can insure their retirements against another potential market crash like in the sub-prime crisis of 2008-09.
Tales of a Technician: Tagging the Golden Goose: A Lesson in Portfolio Protection
You’re a goose chaser. Admit it. It’s the gold you seek. And that’s okay. You’re in good company. Most of us round these parts have been searching for the big bird for ages. Some have even tagged one.
Tales of a Technician: A Trick for Financing Portfolio Protection
Come lear a Trick for Financing Portfolio Protection.
I Bought Portfolio Protection…Now What?
Today is the day we layout a game plan for exactly how to manage portfolio protection.
Options Theory: Hedging Basic Series Part 1 – What is Hedging?
What is hedging? Come learn the basics in this 3-part series.
Options Theory: Hedging Basic Series Part 2 – Why do Traders Hedge?
In part one of our new series on hedging, we defined precisely what the concept means. Today we’re turning to the why.
Options Theory: Hedging Basic Series Part 3 – When to Place Your Hedge
With a sound foundation on the what and why of hedging, we’re now ready to dissect the devil. Namely, when do I place my hedge?
Options Theory: Hedging Basic Series Part 4 – How to Hedge a Naked Put
The way that you go about hedging varies depending on what your strategy is. Come learn how to hedge a naughty naked put.
Options Theory: The Protective Put
The options realm is an insurance marketplace where stock owners can acquire protection against loss in their beloved equities.
Options Theory: VIX Spikes and Portfolio Protection
Today I want to talk a bit about the impact VIX spikes have on the cost of portfolio protection.
Tales of a Technician: Managing Protective Puts in a Crash
It’s nailing the management of Protective Puts that separates the men from the boys. Allow me to offer up a few ideas.
Tales of a Technician: How to Trade in a Bear Market
The bears are roaming. And while their sudden emergence likely spelled losses for traders far and wide, the pain doesn’t have to persist. I look at this as a “fool me once, shame on you; fool me twice, shame on me” situation.
Options Theory: This is What Capitulation Looks Like
Contrarians in a bear market seek signs of capitulation. Specifically, evidence that bulls are throwing in the towel and abandoning their once beloved positions.
Tales of a Technician: Of Legacies and Long-term Investing
Herein we explore the perks of lengthening your time horizon and embracing Long-term Investing.
Options Theory: Protective Put Management
You have questions on how to protect a portfolio. I have some answers. You’ll find them here.
Trading Journals
Good traders keep excellent records. Quality trading journals are essential to your progress and growth as a trader and keeping good records will help you learn more from both your income and expense trades.
Learn more about HOW the Tackle Trading Journals can help you become a professional trader.
Reports [Premium Content]
The Weekly Premium Reports are a part of the PRO subscription.
Tackle Trading Playbook [FREE for PRO Members]
PRO Members now have unfettered access to the Tackle Coaches’ personal playbook containing thirty-one powerful trading strategies categorized according to the Options Greeks. Bullish, bearish, or neutral market conditions, this Playbook will help you dial up the right call more often and with greater confidence.
Financial freedom is ajourney
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.
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.
One Reply to “Notes from a Newbie: X marks the spot”
Nice. Im also in X, although I sold a $35 put as a strategy, and protected and held during this last earnings. It just now recovered to that and I sold for a 70% profit..
I also can attest to having nerves of steel and previously being beaten down as reason for me staying calm through this recent earnings decline… now I’m licking my chops and awaiting to see if it’d dip down low again so i can sell another put.
Nice post, Thanks for sharing.
Comments are closed.