When the Trend Stops Being Your Friend

when the trend stops being your friend:

the experience was one of the worst he ever had. it was 1991. the Gulf War was yet to break out. the stock market had been trending lower for months before the actual news came out that the war had begun. naively, he thought this would mean the market would only fall further. he had bought FTSE 100 put options a few days before, betting that the index would fall. this wouldn't have been so bad, but his broker allowed him to buy traded options without cash upfront. he reasoned he would close the position in a few days, and collect the difference on settlement without ever having to pay for the options. the size of the trade was more than he had in his bank account.

and then the war broke out and the horror began. the market went up. for an entire day or so, the potential loss on the trade was more money than he had in his bank account. his mind was in total turmoil. he had been given a comfortable sum of money by his father and he had used it all to gamble on the traded options market. how could this have happened?!

in conclusion, it was luck that saved him. the rebound turned later that day and he eventually closed at a smaller loss than he had feared, a loss he could cover. unfortunately, he had learned his lesson the hard way, not to believe the general opinion, not to overextend himself.

CLEARCHARGE