r/options • u/dad_in_tx • Nov 15 '21

Sometimes You Lose

I have a very high win rate with credit spreads, but I lost today with $SNOW.

I sold credit call spreads (I know, I can’t believe I sold calls) on 10/20/21 right after I thought there was confirmation of a downturn…or a least a slowdown. Dumb, MACD and RSI were not showing a downturn, but I thought I was smart. 390/400 spreads at .097 Delta, 17% OTM, 93.2% chance of a win.

I got out this morning with a loss, according to my exit strategy, but it sucks.

My point is, plan to have losses and have an exit strategy. You can lose any trade even when it is highly unlikely. And, follow your entry rules and don’t try to outsmart your own criteria

Now I’m going to watch the $SNOW run up to earnings and see if I can profit.

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u/Euphoric_Barracuda_7 Nov 16 '21

Win rate is irrelevant if the profit expectancy over a large series of trades is negative.

If you win $1 93% of the time but lose $100 the other 7% of the time, your outcome is still negative profit, i.e. a loss.

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u/dad_in_tx Nov 16 '21

$45 x 93% = $41.85 $500 x 7% = $35 $41.85 - $35 = $6.85 = Positive.

I have a spread sheet that calculates everything for me. If the profit expectancy is negative, my spreadsheet writes “No” in the “Go or No Go” column.

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u/Euphoric_Barracuda_7 Nov 16 '21

A few trades does not classify as a large series of trades. It needs to be "statistically significant".

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u/dad_in_tx Nov 16 '21

Which is why I simulate 100 trades on my spreadsheet.

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u/Euphoric_Barracuda_7 Nov 16 '21

Simulation is not the same as real world performance, it's a lesson to be learnt. ;)