Date: 12/14/2022
Author: Chris Hood
People make mistakes.
It’s the unfortunate truth whether you’re driving your car, writing an email, or trading.
This week I had two. One was my fault, and the other…well…I’m going to blame it on my brokerage platform.
I know I’m not alone.
If you aren’t paying close attention, it’s easy to pick the wrong strikes, expiration dates or incorrectly enter your autoclose orders.
Managing mistakes is exceptionally irritating and can be expensive.
Hopefully, you can avoid similar issues when I tell you what happened to me.
So here it is.
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Earlier this week, I’d intended to buy a butterfly on SPX for the next day’s expiration.
A simple enough task and one I’ve done a thousand times. However, I pulled up the wrong option chain and bought the fly for the same-day expiry.
I don’t enter 0 DTE butterflies at 3:00 pm.
Suddenly all of my attention was on that trade, to the near exclusion of everything else. I had to close it and had no real plan.
Please don’t ask me how but I made a couple hundred bucks on the trade. The market gods smiled on me, I guess.
Yesterday’s problem was quite different and something anyone using Interactive Brokers should be aware of.
I had an auto-sell order to close some short calls on SPX.
Over the course of the day, my algorithms had gotten me out of the trade, but the auto-sell order stayed on the books.
It became a sell-to-open, and suddenly I found myself in possession of several short naked calls.
My account also sold them at a terrible price, and I was immediately sitting on a loss of around 20K.
It took all my focus to figure out how to minimize this.
I got lucky with the butterfly win, but this was a completely different animal.
Through a combination of luck (the market moved favorably) and defensive positions, I was able to get out without losing that total amount.
However, I was day trading aggressively the rest of the day to help pad my P/L.
It was a challenge I could have done without.
I went from being on track to make my profit target for the week to being in the hole.
And while I know I can absorb the loss and make it up either this week or next; it is something that should never have happened.
So here’s a checklist to keep you out of the same situation.
- When you’re about to enter an order (open or close), double-check everything before you hit send. It’s helpful to say the trade aloud before you place it.
- Be sure not to confuse your autoclose orders. Remember to buy back credit spreads for LESS than you paid and sell long calls, puts, or debit spreads for MORE than you paid.
- Make sure you don’t have any forgotten orders. Whether it’s to open or close, an order stays on the books until you cancel it. Periodically look at your open orders and verify them against your positions.
Trading can be challenging enough without fat-fingering yourself into an impossible situation.
Check, double-check, then check again.
Redundancy in your process can go a long way to keeping you out of trouble.
Cheers,
Chris Hood
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