Trading Lessons Learned in Robinhood & Options Trading

I had the single biggest losing and winning position of my trading career in one day, and it was not this. It was fun to see the progression of where I started from to where I am now. This loss was different because it was the changing of the guard. It helped me develop my risk tolerance and discipline just a bit more. This time, this huge loss came out of learning a new skill: options trading.

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I have prior theoretical knowledge of options trading from my senior year of college at UMKC. I was a bit naive about how the world worked then. In fact from Sophomore year onward, I changed my focus from high GPA to knowledge retention. This led me to stretching myself thin from learning other skills outside of the curriculum: Options trading was one of them. I received my options certificate from Tasty Trade (prior known as Dough), but didn't earn practical experience on it because I was a puss. It wasn't until 2 years later that I finally played with options and became profitable — not without a few hiccups and a low GPA of course.

One of the biggest challenges I faced with options trading was not so much getting into the groove of terminology, but learning the terms of service for Robinhood and how they process Options trades. They were my first options platform, so I had no understanding of how it normally is and what to expect from purchasing a contract. In essence, it was a steep learning curve learning the TOS and placing the options trades within market hour constraints. Nevertheless, my first foray into options territory was a success. I bought a $DNR put option that was in the money, but I bought it at a discount. After a few days the options premium went up, and my notional value went up as a result. The big loss came from assuming a large trade size of real $DNR assets to cover my put, and selling them. This was because I got confused at how to cover a put, but more importantly, wanted to swing the assets to double dip. Because I had a false confidence in knowing I had a $4 put that was in the money, I bought more shares than normal and with rapid succession. There is more detail to the story, but for simplicity's sake, I will say that I didn't know that one had to email Robinhood support to exercise options early. And if the options were out of the money at expiration, all of my assets would not be hedged nor exercised. Further, I learned that selling the premium back to market could be riskier than holding the options contract, or holding assets to cover a long put position. After I cut my losses early, I found a quick trade to profit from: $NVLN

The reason why I cut my losses quick and sold 325 shares of $DNR was because the opportunity cost of going into a play was greater than holding it and maybe selling it at a less loss. This turned out to be true as I profited big off of a intraday play on $NVLN. This was because it had a large volume, meaning large liquidity, still had room to parabolic within the first 30 minutes of trading, and the trend from MACD; Stochastic RSI; and volume bars were there. I turned out to be right and sold at the top of the day at $1.96. Including the notional value of the put option, I was up by $30 in capital. A few days later, I profited off of the put option by exercising it early: a $34 profit. It could have been more at $50, but I covered the put too early, and missed the opportunity to buy the low of the day at $2.70. I bought 100 shares of $DNR at $2.86 to cover the put, emailed Robinhood support to exercise the put, and the Options clearing house will approve and liquidate my contract at the top of the morning. 

Exercised at around 11:30 AM, and processed around 4 AM EST next business day
As one can imagine, options trading isn't as liquid as buying the assets outright and selling them intraday, but the great part of options trading is the contractual obligations of buyer and seller. a Seller has to originate the terms of the contract no matter what. But, because of liquidity reasons, settling an option can be more difficult when numerous parties are involved: Robinhood > Options clearing house > interday market hours. Nevertheless, I am glad to have been baptized in fire with options trading, and will continue to do so throughout this bear market. If you haven't opened a Robinhood account yet, make sure to do so using my referral link to win a free stock. I won $AAPL my first try.

Although I have griped about Robinhood a lot, I am still long Robinhood as a company (and potentially public) for a variety of reasons. I will make sure to talk about that in my next equities post. Also, since we are in a bear market, I will be focused on dividend yield and dollar cost averaging high quality monthly stocks in M1Finance. Stay tuned. 

Trading Lessons Learned in Robinhood & Options Trading Trading Lessons Learned in Robinhood & Options Trading Reviewed by Dividend Raptor on 1:22 AM Rating: 5

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