Monday, March 26, 2007

Following rules


How many of you decided that making an investment or trade before finding out all the information you are supposed to or not following your rules?

I did recently and it kicked my butt!

I was following Electronic Arts ( for an options trade. In the middle of Feburary, I noticed a wedge forming and settling at $50.00. I thought over the weekend that whichever way it moves, I'm going that way.

That weekend there was a positive story in Barron's about the company and the stock appropriately shot up (see chart below). There was a big move with a lot of volume. So I bought the March 55 calls. Bad move. It was bad because I didn't take a look at resistance at the 53-54 range. The calls were out of the money. I'm not kidding you when I say that one of my rules is to buy in the money calls or puts only. I could have bought the 50's, but being greedy, I bought more of the 55's. I actually still had a profit for a couple of days. But then the stock corrected and I lost out and option price hit my stop loss target . At least I put in a stop loss! Otherwise, this was a Dumb Dumb Dumb trade and I threw away money.

Remember to follow your rules. If they don't work, change them. But you can't blame losses on the rules when you don't follow them!

My next blog will be to talk about education of options.

The Wikiwealth portfolio consists of the following:

Pepsi Stock(
Sharebuilder Money Market (

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Take care and happy investing!

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