I share openly with the community and that includes trades that don’t go my way. Often, I learn the most from these. In this case, I established a position on 3Jan that I took down today after a 15%+ downmove in 4 days. I want to highlight a few elements that I find important. Below is a chart with my entry highlighted.
RBLX Being Hella Lame
This style of trade lives in my speculative portfolio allocation, so I maintain tight controls over what I allocate to the trade. I maintain a float of 40 or so similar style trades and ensure they are less than 1% of the account.
Longterm, I’m bullish in RBLX.
I established my LEAP Call Diagonal with (2) long 28Jan23 101C at 42.85
My initial outlay included (2) short 28Jan22 101C @ 7.10. Because I entered this diagonal with a higher % of my allocation, I instituted a mental stop once I hit a 30% decline in the LEAPS
After 4 days, RBLX turned down over 15% from my entry, falling below the 150d MA (an important level for me). I was looking for RBLX to close above the 9d and 21d MAs however that obviously didn’t happen.
I exited the trade, by closing one LEAP to gauge liquidity, then closing the existing short calls, and finally by closing the last LEAP. This is an important part of management in these. Trying to exit the LEAPS first leaves the calls naked. Without testing the LEAP market, it can be difficult to get a fair fill (sometimes patience is required).
Overall, the LEAPS lost -$2500. However, my realized loss in the trade was -$1300 – a 50% reduction in the overall loss. This was from the realized profits from the short calls.
To summarize, when we trade directionally, we’re going to be wrong occasionally. It’s important to be honest with ourselves – in this case, my trade hypothesis was incorrect and my directional assumption was wrong. It’s important to remain disciplined in the execution of our plan. It also it worth noting the power of constructing trades with built in hedges – in this case the short calls, that allowed me to decrease the loss by 50%.