Dealing with loosing option trades

Making a “passive” income out of options sounds great. So far, I am doing fine, can’t complain. When reviewing my recent posts, I have the feeling I only share the success stories. I want to tell the full picture.

The March update of my income is a very kick ass story. At least, for my reference framework. I am in discovery faze, generating bonus income. During  in my learning period, I made a 70 EUR loss on an option. No big deal, I consider it the costs of a trading course, way less than a 300 or more EUR seminar! 🙂  I am still learning, I learn every day.

Fact is, I also have options that do not do what I want them to do. Who would have thought that?!? These are trades that do not produce revenue in the timeframe that I had in mind. It is part of the game. Not all can be winners. The questions is: how do you deal with losers?

What is important to know: I write options to generate an income. I will always do what I can to avoid assignment. I am after the premium, nothing else.

The RDSA example

On 23.10.2015 I wrote a 23 put on RDSA. The trade was in line with my principles

  • I do not mind owning the stock at that price – so I thought
  • At that time, it had a delta of 22. It means I had an approximate 78 pct change of making a profit.

I made the trade and got 0,37 EUR for selling the put. The expiration date was 18 December.


Well, it looks like I was not in the 78 pct range this time. The stock drops and goes below 20 on Dec 14. What to do now?

  •  just wait out the option expiration date and get assigned the stock at 23.

This was not a possibility for me. I think I own already too much RDS.A stock. So, maybe I should not have written the put then… Well no, there is always a second possibility

  • roll the position

I bought back the options for 2,66. This is a loss of 2,29 or 229 EUR. That is almost my full March profit. At the same time, I sold a new put, with strike of 22. I got a premium of 3,05. For this put, I decided to go all the way to June 17 2016. That is a lot of days…

Taking into account the buy back cost, I have a net additional credit of 0,39 or a total of 0,76 (the initial 0,37 plus the 0,39 from the roll)

I also managed to roll to a lower strike. I now have a strike of 22.

  • Some people might actually decide to close the trade for a loss way sooner. Some stop the bleeding when they have a paper loss of 2 or 3 times the initial credit.

Where are we today?

At the time writing – Sunday April 10 – RDS.A  closed at 21.56 EUR. The option is still in the money and has 68 days left to expiration.

Just before publishing, the stock trades at 22,5. This is nice, It is now out of the money. That being said, the option still trades well above the price I have sold it. Still a loosing trade…

A positive note: This stock had another put that went deep in the money. I rolled it down to 18 and far far out, till Sept 2016. This option, I managed to buy back for a small profit. I now have the capital free to make another – hopefully – more profitable trade.

Is this good or bad?

The good news: I still did not get assigned the stock. Remember, the holder of the option can at anytime give me the stock and I would need to pay the agreed price.

More good news: My break even price is 21,24 (Strike- premium received). As I hope to avoid assignment, this is a optional good news item.

Bad news: The trade is already running for 170 days. By the time of expiration it will be 238 days. That are 238 days the margin for this put is not earning a lot. If I can close the deal for 50pct of max profit, I will have a yield of 1,81 pct in 238… Nothing to brag about compared to the rest of my options

Next steps

If I believe in the long term potential of the stock. It means I will roll again when the option is in the money around June 10. In the mean time, I will keep an eye open to buy back the option for a profit.


17 thoughts on “Dealing with loosing option trades

  1. Amber, you and I have a very similiar philosophy. I, too, have chosen often to “roll” losing trades. While it’s far from perfect (time, as you note), it does significantly increase the chance of “saving” a losing trade, and turning it into a winner. Thanks for your honesty.


    1. Learning how to deal with loosing trades is equally important as managing the winning trades. I did not want to be the “I only have winners” guy… I do not think they exist.


  2. This remain fascinating to read, keep these update coming.
    As for RDSA, we actually ended up selling the stock 2.5 weeks ago at €22, bought back a few days later at €20.75 and sold it again (albeit too early) at €22 two days ago. Made close to €500. Now it is a matter of seeing what the stock is doing in the next couple of weeks to buy a few a again and get the next dividend payout, after which the buy and hold strategy starts once more. Seems that the stock is poised to rise a bit further due to, what seems to be, a more stable oil price.


    1. I did not know you were a player with your core dividend stocks…
      Plays like you do are now heavily taxed in Belgium: 33pct of that 500€ would have to be paid in tax…!


      1. Hey AT, we not really a players, we just saw an opportunity and took it. Fortunately, in the Netherlands capital gains on stocks are not taxes. Your hit with the wealth tax, which assumes you make 4% and than taxes it at 30%. These capital gains do help us to get over the 4% and make the overall tax burgen en bit lower.


          1. Now we are talking, Panama sounds very nice! Still waiting for a drop below €22 before buying back RDSA…..


            1. On Suday evening, I expecetd a major oil drop after the failed meeting. In the investing game I participate, I went short OIL and AEX with Turbo’s. I lost big time. I real life, the opposite is true?


  3. hey ambertree 🙂

    its very important that the we dont conceal the lossing trades. Everyone who is new in trading options must understand that there are not just winning trades, but that there is always a possibility to come out.

    thanks for sharing

    best regards


  4. Wow, this kind of makes me nervous. I’m so used to the Buy/Hold philosophy, I haven’t looked at any other options. I just hate the phrase, losing money. I appreciate the honesty, but it kind of turns me off options.

    Is this something you consider yourself going to continue in the future?


    1. Options are a keeper for me for now.
      On this option trade, i actually only had paper losses and in the end came out with 20 EUR profit. Not a lot, but it pays for pizza and a movie.


      1. Pizza and a movie? Life doesn’t get much better than that. Maybe Nachos…. been craving nachos….


  5. Thanks for sharing the ups and downs. I’ve never been involved with options myself, but I’ve always been curious about them after learning about valuation methods in my accounting undergrad.

    A yield of 1.38 is not great, but its still good.


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