Capitalist Concept

My Bank of America (BAC) Options Trade Story

I have been investing in the market ever since I turned 18. My first trades consisted of AAPL and RIMM. I bought them because I knew there product and saw their popularity sky rocket across my friends and place I visited. The trades ended up profitable, and I was hooked on the markets.

I made the novice mistake of buying high and selling low and ended for a loss during the 2008 financial crisis. Nevertheless, the years that followed have been good to me. I have learned my lesson, improved, and I can’t complain. Recently, I finished my intensive investment banking internship so I have a bunch of free time and cash. Of course, I decided to do a little trading.

I chose Bank of America since I believed the company to be fundamentally undervalued, the stock had dropped to record lows, and was volatile. A couple of weeks ago I had purchased 25 10/22/11 $7.00 C at $1.15 each. I held it for 2 days and exited at a $1.40. I couldn’t have gotten luckier- this was within 5 cents of the maximum price it was planning on going for weeks. I was content with the gains and decided I would be patient and renter the trade if the option price dropped below .86 cents.

At the beginning of week the options tanked and I picked up 80 10/22/11 $7.00 C at $0.85. This time the cost basis of the trade was much higher. The stock quickly sunk to $6 a share and the options to $0.64. I was cool. There was little to worry about since the fundamentals hadn’t changed; but when the stock shot up the next few days, I decided a $0.10 profit was enough and put in a limit order at $0.95. This was a really amateur mistake.

Putting limit orders is usually not my style. The move shows laziness, a lack of research, and involvement on the investors part. Unfortunately, the harm was done and I only profited $0.10 on my trade. Sarcasm aside, the options sky rocketed to $2.03 with news of Warren’s $5 billion projected investment in the bank.

I’m grateful I didn’t loose money on the trade, but in the future I will have to be more focused and disciplined especially when trading options. I will have to remember the Zurich Axioms of trading next time. Hey, maybe I’ll buy a couple of puts on the stock, and at least I still have Apple shares.

What? Steve Jobs quit? He will be missed.