A Guy With An Idea

What a difference two weeks can make. Last time I wrote about how the week went, I had bought to close a bunch of covered calls I had previously sold short to prevent them from being called. This resulted in my realized gains being negative for that week. But these past two weeks have been green weeks. And though I have had a couple of positions called, that’s OK. Here is why:

I’ve re-assessed the core investing principles I’ve established for myself and have made a few adjustments. Primarily the tweaks have been around acknowledging my emotions around investing when they pop up. It would be inaccurate to say I’m ignoring my emotions about my investments. I can’t do that. Instead I’ve put in guardrails that better deal with the truth that I will always be emotional about some trades. And when I am – when that dark creature who panics about being broke and destitute because of a poorly executed trade rears his ugly head – my process will be to pause, take a deep breath, pull out my playbook, and follow the guardrails I’ve spent so much time erecting. If things go wrong (and things eventually will always go wrong) I will pause, take a deep breath, and reassess in a retro style similar to software sprint review). After the fact and not in the heat of the moment. What went wrong? What are the 5 Whys to be considered? What adjustments need to be made to the process? Unemotionally. Using the facts at hand.

Before I make a trade I still take note of how much I’m willing to lose on the trade if things go South. If it is a stock investment, I establish the trailing stop loss threshold before the buy. If I’m selling puts or covered calls, I’m now aligning my risk corridor with the underlying investment and my willingness to be wrong on the trade (rather than being hopeful I’ll be right). See Selling Cash Covered Puts (add link) and Selling Covered Calls (add link) for more details.

Changes since last week

• ATVI and LUMN stop loss triggered (the former at a profit, the latter at a loss). I’ve taken the cash and have stocked up on dividend stocks while the market churn continues. IEP and HRZN are the two I’m buying. Neither of these I would consider “growth stocks”. They’re boring but shed a ton of cash pretty regularly.
• I started selling cash covered puts (more on this later). I’d previously only ever sold covered calls (add link) and bought puts. Selling puts is going to be a game-changer for me from the results I’ve seen so far.
• I’m pulling back on SoLo Funds and investing more with Prosper. I still think P2P lending is very interesting and can be a great way to make consistent returns, but I only have so many hours in the week and right now they’re all focused on learning more about option trading. Still, I’ll write about my thoughts on SoLo and Prosper soon.

Stocks I’m watching

• Twitter (TWTR) is interesting. The ongoing saga about whether Elon Musk will buy Twitter or not is making this a great opportunity for short-term plays.
• Rivian Automotive (RIVN) continues to be one I want to win but can’t seem to catch a break. The past two weeks in option trades have proven profitable, however.