Sleepless weekend

Messages
3
Likes
2
Hi,
I just wanted to share my experience of this past weekend.

I had bought 3,000 contracts for Oct 15th $4 puts on Citigroup. I picked them up for a cent each, and with commissions they cost 1.3 cents each.

Anyway, on Friday they peaked around 8 cents, but I hung on too long and the price was dropping. Towards close, the stock price was about $3.95 but people were only buying them for 3 cents. By trying to get a better price I hung on just a bit too long and the market closed.

A little later is when the problems began. In after hours trading I started exercising some of the options and buying the stock back (at $3.95). I reckoned that I had a couple more hours of after hours trading in which to cash in as much as I could and then lapse the rest of them.

This is where a gap in my knowledge cost me a sleepless weekend. I hadn't realised that my brokerage had a cut off of 4:30pm (EST) to exercise or lapse options. I have some margin in the account, so I had managed to exercise 300 contracts and buy the 30,000 shares back, but I was left with 2,700 contracts, which were then (being in the money) automatically exercised.

Of course, that left me with a short position of 270,000 Citigroup shares, worth $1.08 million (in after hours the price had creeped up from $3.95 to $3.99).

Worse was to come when, hoping that there would be no news to cause a big shift in the price, I read that Citigroup would release their Q3 earnings this morning.

Anyway, I had little sleep on Friday and Saturday night, although I think that I slept better last night when I figured that there wasn't much I could do.

Luckily, my account lets me trade pre-market I managed to buy the stock back for $3.97 just after 8 am (EST) - leaving me with a tiny profit after taking into account the other costs.

As I write the offer price is $4.03, and I can only guess which way it will go when the regular hours trading starts. Recent history suggests a drop at the start of regular hours (the brokerage liquidates at around 9:40 am EST) but I am more than happy with my tiny profit and the promise of a good night's sleep tonight.

Anyway, I have learnt a big lesson, and just wanted to share it with you guys, partly as a way to wind down from this.

Take care.
 
sleepless.... i'd imagine most of the people would simply jump off a bridge.... 3000 options....

congratulations anyway!

out of curiosity - what broker do you use?
 
sleepless.... i'd imagine most of the people would simply jump off a bridge.... 3000 options....

congratulations anyway!

Thanks! I actually feel very fortunate that I managed to learn this lesson without getting burnt (except for the stress of this weekend).

Looking back, there have been a few times when I have had similar positions open just before expiry, or have been considering opening such positions when the contracts fell into the 1-2 cent range. All the time being unaware of this danger.

If I hadn't learnt this time, I could possibly have gotten myself into a whole heap of trouble in the future.

It was bad enough being short 270,000 shares on Citigroup, I can't imagine if I had been short 270,000 shares of Goldman Sachs - especially as they rose $1.20 a share before the 9:40am liquidation deadline yesterday!:D

out of curiosity - what broker do you use?

Interactive Brokers.
 
Ok so you are finally discovered the theta for yourself. Another good cause to celebrate ! :)
 
Top