Options Trading Off To An Ignominious Start

LKQ-ouch

Ignominious“…such a fun word, yes? Except if it’s used to self-describe.

My recent foray into stock-options trading has been ignominious to say the least. First there was my earnings bet on Questar (STR). The stock was in a downtrend and the earnings report missed expectations, and yet I didn’t get the drop I’d hoped for with my put option (discussed here). The price is slowly going down, but the put option price remains unchanged so far.

Then I bought a put option on Comcast (CMCSA) based on chart technicals. The stock was bouncing back and forth in a channel and it looked like it was time to head ‘south’ again. I don’t recall if I’d actually checked or not, but their earnings report came out and was mildly positive. So the stock of course headed upward and I sold my option for a loss. A 41% loss to be precise, but that was only $70 since it was one option contract.

Since when do I trade using channels and support/resistance??! That’s not my style, so shame on me.

And then yesterday as I was screening for stocks, LKQ Corporation came up on my radar as a breakout play. In my defense, I was using backtested strategies to come up with this trade, not some off-the-cuff rationale like the other trades.

Rather than buy the stock outright, I thought I’d give options a try (this time by buying a call). The buy/ask spread was 1.30/1.60 if I recall correctly, so I put in a limit order of $1.40 last night. Yes, just one contract again.

This morning I got a trade confirmation for the option order. “Huh, that’s weird…$0.50? I thought the price was higher than that.” Then I saw the carnage when I went online.

LKQ had released an earnings report this morning that ‘failed to meet expectations’, shall we say. The stock closed at $27.85 yesterday, and opened today at $24.10.

Ouch.

The good news is that I only spent $50 on my option instead of $140. The bad news is that I bought it at all! I went from an in-the-money momentum play to an out-of-the-money hope-it-doesn’t-expire-worthless play.

On the bright side, at least I didn’t buy this yesterday! And at least I didn’t buy the actual shares. The stock did move up 2.8% today, so maybe it’ll move higher. More likely I threw away “dinner for two” money.

The odd thing is that I wasn’t planning on the earnings report. I *did* check this information beforehand (I’ve checked my browser history to make sure). I seem to have gotten confused about the earnings report date, and thought yesterday’s bump was due to the report having just been released.

Lesson learned: just because options are less expensive than the underlying stock doesn’t mean you should treat them casually. I spent about an hour researching a different long-play stock last night, and about five minutes on LKQ. Good thing my experiments have been tiny.

 

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