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Last night SPY trading range was $410.25 to $412.19. That’s within the trade parameters of $408 to $413.

Which could well net in a total profit of (300 + 800)=$800!

However, the loss was $930!!!

What went wrong?

1. Position size was too big

The same problem – too greedy. The position is big at 50, for a profit of $300.

Can the trade size be smaller and net in a decent profit? The answer is yes, we could have made $200 without such a huge exposure.

Lesson: Choose the smallest possible size to trade.

2. Taking risky positions

The strike are too close to the money. In other words, could I have chosen a strike that is further away and yet make a decent profit?

The answer is yes, I could have chosen a strike further away and make $200 with a decent profit.

Then I will have less risk exposure.

By aiming for quick profits, my delta is high and potential loss and gain is highly sensitive.

Lesson: Choose the farthest strike price I can trade.

3. Following the trend

On the first sign of market up trend, I put in the spread of 408/409. As the trend weakens, the 408 strike became closer to the money. Recall that this is a bull spread, so being close to the money will get priced out quickly.

When it became weak and begun reverval, I quickly sold it.

Lesson: selling too quickly on a market reaction, even when the low of 410 is out of range ($409).

Now, after selling the spread, I quickly entered into a bullish position and follow the trend from 411.19.

Of course, the trend didn’t last and began ranging at 411.75 to 412. This cause paper loss of $200 to $350.

If I had hold my guns and waited for the market to stabilize, I would have found a better price to enter the position.

Lesson: Do not follow the trend.

All in all, sound risk management has been practiced to prevent further losses.

Be patient and disciplined, and you will be rewarded.