Before I begin, the main reason to get stopped out Today was the fact I didn’t follow my original plan on this trade. I got emotional about it during the down-run and got knocked out when the market snapped back up. So, bellow is the trade and its adjustments one by one.
1) First let’s look at the original volatility cone on the trade, as you can see, we went down to the 1.5x st. Deviation right in the beginning. At that point I closed the CALL side for .13c, my plan was to stay with the PUT spread until they hit a delta of -25, the insurance was holding the trade under the max loss and 25 delta would have kept me out of trouble evenif we spent some time bellow 1.5x st. deviation on the original volatility cone.
On 03/05 I got emotional about hanging on to the down-side two months in a row and decided it would not happen again. So I went to work cutting PUTs and re-opened 1/2 of the CALL spreads. This in hindsight was the biggest mistake: I didn’t evaluate a new volatility cone when I added and adjusted the trade, look at the new volatility cone after my adjustment, you’ll see the market snapped back up 1.5x st. deviation, this time to the up-side.
3) So, when the market snapped back up, I had the CALL spreads and they knocked me out. Now that I learned this lesson, my decision is to no longer make adjustments on the High-Probs, I’ll discuss it with Dan next week. My plan from now on is to set them and take the spreads at .10c or close the trade if it gets down by 1.5x the cashflow. I tested this and looked at the Volatility Cones for the past 5 years, this should work about 75% of the time.
What did I learn?
1) Trust the probabilities
2) Don't chase the price
3) If and when I adjust any trade, look at the new Volatility CONE before doing so
4) Do not let previous month's loss to take me out of my plan. My original plan for this trade would be working right now
What will I do next?
1) Cut back in size untill I can re-gain my self-confidence
2) Stop trying to adjust HP condors, work with 1.5x the cashflow as the stop and that's it
3) Go over the trade with Dan for his feedback.
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