Trade Highlight #5
This Trade Highlight we are not discussing a quick success story. I did end up making a small profit, but I had to go through hell first. I didn’t stick to my strategy and acted on impulse. I almost paid an enormously high price for it.
Last week we discussed my AbbVie puts, yes plural! If you haven’t seen that post yet you can find it here.
As you can see above, I initiated my first option on the 7th of June. Quickly after this Tweet I decided to put another iron in the fire. Here are the options I’m talking about:
-C BYND 19 JUL 2019 $145 $7,10 BOUGHT BACK: $12,80
-C 15 JAN 2021 $180 $19
-C BYND 21 JUN 2019 $160 $3,90 BOUGHT BACK: $13,04
-C BYND 15 JAN 2021 $200 $27,30 BOUGHT BACK: $17,00
All information about this trade can be found at numbers 80, 81, 83 and 93 via my options page.
Basicly what happened is that I sold two short calls on impulse (speculating the stock price would go down), when my first call went negative because the stock went up even further I decided it was a good idea to sell a second call.
As you can see above, I had to quickly roll out the second call because it got very close to the expiration date while being ‘in the money’. This means that it was very likely that the trader on the opposite side of the trade would have excercised the contract. I would’ve had to deliver 100 BYND shares at $160 while at the 17th of June the actual price of BYND was between $180-200.
I managed to gain €115 on the rolled out option when I bought back the JAN 2021 $200 call on the 24th of June. Luckily the share price came down a bit. I closed my JUL $145 call on the 8th of July. I decided not to wait to long and to simply roll the option out to January 2021, with a strike of $180.
Beyond Meat debuted on Wall Street on the 19th of May. Ever since the share price kept skyrocketing. For a company that makes a loss and only has sales of around $80 million a year, a market capitalization of $10 billion is pure madness.
On the 6th of June Beyond Meat reported their quarterly results, while the company at that point had already risen from $25 to $100, there was more to come. On the 7th of June the stock jumped around 38% to close at $138. This is where I decided enough was enough. At work we had been discussion the stock and how insane the current valuation was. In the train back home I decided to initiate a position.
This decision was completely out of line with any options trade I’ve done since November 2018, I guess I saw some quick Dollars coming in. Oh boy was I wrong.
The stock continued to go up to a whopping $200, leaving my positions around $6000 in the red. And even worse was that I had to seriously consider my choices in order not to get taken out by a margin call. It means that my broker has a limit up to where I can use margin, if I get under that limit they could decide to sell something from my portfolio to get me positive again.
The rising stock price meant both calls needed more money in my account to make my broker feel secure. On top of that the percentage that they calculated for Beyond Meat options went up as well. I was fortunate enough to have enough cash to just barely make it, but some coworkers of mine have been less fortunate.
In the long term I’m still convinced I’m right, however, because of the little amount of shares out on the market the price is very easy to influence. This means that the price can keep going up, although the fundamentals could never support the current valuation. I will refer to a famous quote: “the market can stay irrational longer than you can stay solvent”.
Long story short
I learned an utterly valuable lesson here. I saw quick profits, acted on impulse and almost got tremendously punished. Right now one of the two positions is closed at a profit, the other one is still open. However I profited €115, this might’ve cost me one or two years of my life because of high stress levels.
For months I’ve managed to make quite a bit of money by following a strategy. Selling options on blue chip companies and have atleast a 10% margin of safety. Worst case scenario, I have to spend money on stocks I wouldn’t mind owning. I threw this profitable strategy overboard and acted too quickly.
The most notable leftover from this trade is a beautiful post it on my computer monitor with the words ‘Beyond Meat… Stay The Course’. Never again…
For any questions regarding options, leave them down below in the comment section or simply hit me up on any of my social media channels!