“Don’t look back.”
That was the advice the angels gave to Lot and his family as they led them out of the city of Sodom, just before it was destroyed by the wrath of God.
Whatever happened to the city after he fled was no longer Lot’s concern. It was no longer any of his business. He couldn’t do anything about it.
So, “don’t look back” was the angel’s way of saying “Look forward. There’s nothing to gain by watching what happens behind you. Focus on your future and what is ahead of you.”
As the Bible tells us, Lot’s wife wasn’t all that good at following directions. She couldn’t resist the temptation to look back and see what happened to the city she just left. And she was turned into a pillar of salt.
Who knows? Maybe it’s because too much salt can lead to high blood pressure and heart problems. Maybe it’s because a pillar of salt is fragile, yet immoveable.
Whatever. The bottom line is, Lot’s wife shouldn’t have looked back. And neither should traders.
Once you’ve exited a position, whether for a gain or a loss, it doesn’t matter what happens to that trade anymore. There’s nothing to be gained by looking back at it. Focus on the future and the opportunities that are in front of you.
If you look back, you run the same risks as Lot’s wife – not that you’ll be turned into a pillar of salt, of course. But that you’ll be rendered fragile and immoveable.
Think about this…
If you’ve taken a profit on a trade and then choose to look back at it, then one of two things will happen…
- The position will reverse. You will have sold at the perfect time. And you’ll expect to be able to do that consistently in the future. This leads to overconfidence and the belief that you’ll always be able to get out of town just before the market gods unleash their wrath. This is a dangerous thought process.
- The position will go on to even bigger profits. You will have sold too early. And, even though you took a good profit on the trade, you’ll feel bad because you could have made so much more. This leads you to question every future trade. You’re more inclined to hang on longer than you should. And you may not be able to get out of town in time.
If you’ve taken a loss on the trade and look back at it, then even if the position continues to fall you’ll still feel bad about having taken a loss.
And, if the position turns around and starts to move in your favor, then you’ll likely start hanging on to other losing trades longer than you should – hoping they’ll start moving in your favor as well.
Traders have nothing to gain by looking back at trades they’ve already exited. You can’t change your decision whether it’s proven brilliant or stupid. All looking back will do is paralyze you, like a pillar of salt, on future trades.
I bring this up today because I’ve received a few comments from folks who took profits on an Oracle (ORCL) put option trade I recommended going into earnings last Thursday. We sold early on Friday morning for an 80% overnight gain. But some folks were disappointed because they could have made more than 100% if they had held on just a bit longer.
To them, I say it’s important to understand that longevity as a trader has nothing to do with achieving the maximum profit on any one position. It has to do with consistently taking profits on trades as they reach your price targets.
You’re NEVER going to consistently buy at the low and sell at the high. Trying to do so will eventually lead to missing out on good trade setups, and holding onto trades longer than you should.
So, avoid the temptation to look back at the trades you’ve exited. Be happy with your decision to get out of town. Focus on the future and don’t look back.
Lot and his family left Sodom and prospered in the neighboring town of Zoar. Lot’s wife looked back and was turned into a pillar of salt.
Best regards and good trading,
P.S. Do you think it’s true that traders should never look back? Or do you benefit from mulling over old trades?
Send me your thoughts and stories… and any other questions or suggestions… right here.
In today’s mailbag, readers write in with the lessons they’ve learned from trading options…
Hi Jeff, thanks for your last update on Macy's. I am a relatively new subscriber (started this year) and I did what you said not to do. I over-leveraged the call on Macy's and didn't sell the put. As a result, this is a big loss for me.
However, I wanted to say that I've learned an expensive but valuable lesson here. That is why I really appreciate your last update on Macy's. The lesson learned is worth having made the mistake and you helped drive that home.
I appreciate how you take the time to not only give guidance on specific trades but also on general trading strategies. Those lessons may be worth the price of the Delta Report in and of itself.
Keep up the good work.
Hello Jeff! About uncovered puts, I trade on a very small options account as I am still learning, so selling uncovered puts would exceed my margin limits. What I do instead is sell a vertical spread by buying a lower strike put to cap my margin requirement for the trade.
I do not get as good a return as selling uncovered puts but can still participate in recovering any losses. As for the Macy's calls, I rolled my position size in half, down to 22$, and out to October expiry for minimal cost and am sitting on a small profit at the moment.
Just an FYI from one of your grateful members! I really appreciate you and this service and I am learning so much about technical analysis and letting go of emotion!
I wasn't familiar with your trading strategy regarding buying long-term call options and selling short-term puts on them. That sounds like a fantastic trading idea to me!
Thank you very much! I'm really appreciating your approach and enjoy making money while learning from you! Thumbs up and please keep up that excellent work!
They also offered their takes on option expiration, hedging, and the action in gold against the dollar…
I have followed you for several years and would like to thank you for sharing your knowledge of options trading as an alternative to holding only large long stock positions. I have used your lessons to significantly reduce my risk and increase my returns by buying puts and calls for stocks that I have a high conviction on their direction.
You mentioned the other day that 67% of all options contracts expire worthless. Aren’t they supposed to? My understanding was that most options contracts are used to hedge existing positions held by large institutions or producers that need to guarantee a minimum price. I thought they wanted them to expire worthless since that meant their holdings have not dropped in price.
It was supposed to be like an insurance policy that you hope to never collect. The cost of the options would be comparable to the insurance premiums. Since I rarely hold options all the way to expiration this has proven to be very profitable for this small trader. Thanks again for all you have done for us small fish.
Jeff, just my opinion here… but your call that gold will go higher is in conflict with your call that the US dollar will also go higher soon. Not sure how they can both go up at the same time.
Yes, I will take a short position to hedge my longs. Thanks for all your help! Long time flex subscriber.
And finally, some excitement about a recent quick-hit Delta Direct trade…
Nice call on the (ORCL) earnings trade. What a nice overnight gain, thank you! Also loved the recent action in TEVA. The gain on those recent long calls, along with the couple CCs we sold, have helped to alleviate some of the pain there.
Keep ‘em coming!
Thanks for the ORCL quick put/earnings trade. In at $1.51 out at $2.95. 95% gain by just holding it overnight… not so bad! LOL. Keep up the good work!