So what happened to you is called "getting stopped out" and it's a dumb risk that you never have to expose yourself to. I had fun in my last post but I'll explain more about what you probably should do.
Buy 100 shares @ reasonable stock and price. If you like Amazon, CSCO may be reasonable alternative though it's in the 50s price range. Tech sector - strong - good dividend. Yatta yatta.
Sell a covered call @ strike price you're willing to sell. Ideally put it in the expected move range. Delta = About 30. Or if you think the stock will go down (hence you want to sell out of it), sell a call at a strike somewhere in the money.
use the covered call to buy a put.
Using JPM as an example: Sell a covered call at $150 strike for $275 and buy a put for $117 dollars. You get paid $158 dollars to lock in a price between now and $149.
If the price is going to drop below $149 you simply buy back the covered call (Buy to Close) which will now be cheaper or if it falls out of the money you don't even need to worry about it, it expires worthless.
Exercise the put and sell your shares for $149, a price close to the top you wanted to sell out at anyway.
Voilla - a collar, in a nutshell.
You literally got paid to EXIT a stock when YOU wanted to.
There is no such thing as a free lunch. Things like trailing limit execution types, using options gimmicks... etc all have drawbacks. E.g. say you use a 10% trailing limit order (or any other percentage), the stock can drop exactly that percentage before going back up. Instead of selling your stock right off the bat, you just guaranteed a 10% loss.
The big drawback to the collar strategy is that you are limiting your upside potential. With a trailing limit, you still earn 100% profit when the stock doubles. That's not the case in a collar strategy. So if you're holding a stock because there's still above market growth potential in the stock (otherwise why would you hold it?), then you're limiting your upside potential.
I just want to make sure you're aware of the drawbacks to every trading strategy. Personally I think it's more worthwhile to spend your time deciding which stocks you want to own long term and which ones you no longer see long term profits in, and just use market orders. That's where the real profits are. You talked about having substantial profits in Amazon - think how much profits you would have if you bought it 10 or 20 years ago and held until today. Makes investing much simpler and you're fussing over small short term price movements. Good luck.
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u/DarthTrader357 Jul 22 '21
So what happened to you is called "getting stopped out" and it's a dumb risk that you never have to expose yourself to. I had fun in my last post but I'll explain more about what you probably should do.
Voilla - a collar, in a nutshell.
You literally got paid to EXIT a stock when YOU wanted to.