Have you ever heard the saying “out of sight, out of mind”?
Let me tell you about the time that saying came back to bite me in the you-know-what.
It must have been 5 or 6 years ago. I had just placed a trade on a stock I had traded a lot: Archer-Daniels-Midland (ADM).
As you know, most of my trades are income plays: covered calls, naked puts, spreads.
But this was one of those rare occasions I decided to take a shot at buying an option.
Earnings was coming up and I was expecting good earnings report and solid forward guidance.
So I bought a couple of at-the-money call options. Nothing big, just enough to have a little fun with.
A day later when earnings came around, the stock popped.
That’s not the problem.
The problem is that I didn’t lock in my gains.
See, I’ll usually set a “good till cancelled” order to sell the option at a certain price.
It’s a good habit to get into.
But I didn’t do it this time around. Don’t ask me what happened. Maybe I forgot, or maybe I got distracted.
In any case, the stock popped on earnings — not a lot, maybe a couple of bucks — and I thought I was golden.
It wasn’t until a few days later that I was checking my account and I noticed I was sitting on a bit fat loser.
See, after the stock popped on earnings, it suddenly started dropping.
And because I hadn’t set my sell order in advance, I had a paper winner that turned into a real loser.
By the time the stock recovered, my option had long expired.
The lesson? Never underestimate the value of planning your trades and setting those sell orders in advance.
It might seem like a small step, but it can make a world of difference.
Especially in a situation like this where a stock doesn’t go up and keep going… When a stock has a quick pop, if you don’t catch it right at that moment, it’s like you never had a winner to begin with.
So keep your trades in sight and on your mind, and you’ll avoid unnecessary losses.
By the way, situations like this is why I love to use covered calls.
I get to pick a solid stock that I want to own. And then I get to charge people for the chance to take it away from me.
There’s no trade to babysit and you can literally choose to never sell at a loss. In fact I’m doing it right now with NVDA. Check it out here.
Trade well,
Jack Carter
