i lost money on Paypal starting November 2021 i made a trade on Paypal i think at the time
i was short a 215 strike on Paypal and Paypal was trading at about 228
the day before earnings or maybe the day of earnings
and then it missed its earnings announcement and then it started trading around 202 to 203 and
what happened was those 215s were obviously in the money so i had to roll those positions down and
then thankfully over the next two or three months Paypal essentially traded between 180 and 190
for the majority of that time frame the problem that i ran into is that usually after a large
sell-off a stock has a tendency to fill in that gap and then retrace some of its prior losses
especially if it's a large cap stock like paypal which at the time i think had a market cap of over
300 billion dollars the problem that i ran into was that paypal just kept falling so when paypal
was trading between 180 and 190 i was selling a combination of puts and calls the puts that i had
would have a strike price of about 170 to 175 and the calls that i would sell would be around 210
to 215. what i should have done in hindsight was just sell a large number of call options and use
that premium to close out the put options the issue that i ran into was i felt that paypal
was going to retrace some of its losses and at least stabilize but it didn't and then in early
february of 2022 when paypal fell then i started running into some problems thankfully i did trade
relatively small although prior to the earnings announcement in february i did actually add some
additional contracts on the put side which was a mistake but right now in march 2022 i actually
closed out some of the paypal position and overall even though the position wasn't that large
because the magnitude of paypal's drop was very large where it fell from trading around 307 to
and ten dollars all the way to about ninety five dollars where the losses are going to be pretty
significant paypal is going to end up costing me about three to four months of trading profits
now obviously it could have been significantly larger if i traded a lot more contracts but i
do think it's extremely important to not trade too big what are some of the major takeaways
that i experience now first let me tell you that i don't believe i've ever experienced an underlying
fall 70 percent in just a few months even in march 2020 when the s p fell about 36 in 33 days
even in march 2020 i don't believe that any of the underlyings that i was trading fell 70 during
that time period and during march 2020 i think that i took losses in lockheed martin and rtn
at the time which is now rtx but during march 2020 i think i suffered some losses in lmt and raytheon
but it wasn't anywhere close to the amount of loss that paypal has endured over the last few months
so what are some of the takeaways that i took from suffering this loss the first is that i'm thinking
of changing my trading strategy to not focus on individual underlyings and instead to focus on
indices the second is that it is imperative to buy options as protection the third is that i will be
a lot more careful when i roll to make sure that i don't expand and add risk to that position
because similar to paypal where i thought that the probability of me being wronged
and suffering a loss by adding some additional put contracts onto that trade were really low
the problem with that thinking is that even if the probability is really low it could still happen
and in the worst case scenario like what happened with me and paypal i did suffer a relatively large
loss losing three to four months of profits is not something that makes me very happy so as a result
i want to make sure that in the future if i'm going to roll a position i'm not going to add risk
onto that position instead what i should have done like i mentioned earlier was it's okay to sell
additional call options but if you're challenged on the put side then don't add additional put
contracts onto that position now in the past have i added additional put contracts onto a position
and not gotten in trouble for it yes 100 in fact i think that this is one of the few and only times
that i can remember that i've actually gotten caught and gotten in trouble by adding additional
put contracts onto a challenged position but that being said though but in this situation it came
back to cost me money so you can make an argument and say well in 100 other situations you increased
the risk on this specific trade and you didn't get in trouble but the reality is that in this
specific situation where i had a losing trade it did come back to bite me in the butt so basically
the main changes are i'm going to consider only trading indices i'm going to buy put options to
protect myself against the tail risk and i'm going to make sure that i don't add risk to a position
now there are some additional changes that i'm going to make i'm going to trade more short-term
durations and i'm going to add these changes into the course and i'm going to update the course
materials with the latest trading strategy if you have any questions leave a comment below this is
david jaffee with beststockstrategy.com please like comment share and subscribe
leave a comment below and let me know your thoughts and whether you have any questions