What a difference a Minute makes

The shorter the time frame to act the less likely there will be a chance to make up for it. As the saying goes: “Dry bread at home is better than roast meat abroad”.

Yesterday, I was lured into making a risky trade (that I regret). It was a one day vanilla call on the NZD to climb further against the USD. While the trade idea was good in principle it had three mistakes:

1) wrong timing (too early)
2) non-optimal entry point
3) short duration

The risk-raward-ratio was acceptable, but with three mistakes coming together failure was in the books. Despite the short time frame there was time to get out of the trade. When you look at the NZDUSD chart the green zone between 0.8280 and 0.7290 represents the zone where the option was at the money. Anything above was a profit. The green arrow/cross at 9pm (equals 10am New York cut) show the expiry.

nzdusd call option expiry
The green cross on the bottom signals 10am options expiry time. Just at that minute the price dips below the money zone.

Few minutes before the expiry the price trends higher and arrives inside profit zone. Technically, I could have closed it here. When closing options ahead of expiry brokers often skim 3 or 4 pips off of the position in their price quote. If I really want out I have to accept that. When waiting until expiry the brokers can’t do that. They have to settle at the market rate at that 100th of a second. Guess what happened, today? Just 2 minutes ahead of expiry the market started dropping and when the truth of the moment arrived my call was out of the money. Instead of getting my money back and a bit of change nothing was left. That’s how fast a single trade can crater. Just 2 minutes between profit taking and bankruptcy. The reason why I did not get out of the trade was because I hated the idea of letting the broker take 3 or 4 pips of my money. At the end my trade idea was not destroyed by my mistakes but by my “hope” to get lucky. This compares to a well fed bird jumping on a busy Road to pick up some breadcrumbs off the tarmac during rush hour. Murphy’s laws prevail once again.

Leave a Reply

%d bloggers like this: