TSLA broke my heart, live

A Tuesday Trade Edition: One of the most important concepts in trading is to review your work, and learn from the good and the bad. It’s critical to identify what’s working — to do more of it. Each week, you’ll get a trade from my trading journal, in which I explain my whole thought process from start to finish. Trading is all about finding something that works, and applying it, over and over again. That’s how you find trading success. So study up on this “Tuesday Trade” and let’s get to work.

If you’ve paid attention to the market whatsoever, you know that TSLA has been on an absolute tear. Now why has it been? Well on August 12th TSLA announced a 5 to 1 stock split. Even since that time this thing has traded from $1450 to $2129 — which is absolute insanity. The reason it’s trading higher? Because people are wanting to be in on it before the split, and that volume and momentum is pushing the price higher. 

So obviously, I wanted in on the action too. So I put two separate butterflies on it. One butterfly actually worked out great, but the focus today isn’t on the successful one… I want to focus on the losing one.

Why?

Because a while back I posted a YouTube video about how butterflies work. From that video, I got so many questions and comments… But the #1 question?

“Well Danielle what happens when it doesn’t work? Where does it go wrong? And how do you manage it?”

That’s going to be my focus today…

The TSLA Trade That Broke My Heart, Live

Now as I said, to start I placed two separate stacked butterflies. One was targeting the $2000 price point, and this actually was a 5X trade. That’s a great trade… but for some reason, I thought to myself, “Well you know, that’s not enough.”

So I placed another butterfly targeting $2100 because I thought on Thursday going into Friday that perhaps overnight TSLA would gap up and go all the way to $2100.

Five Star Trader Hint: Now one thing people don’t always understand about butterflies is that you can still make great money on them even if they don’t pin. What’s pinning mean? Pinning means that the ticker closes at the exact center strike of your butterfly on Friday, right at expiration, within 15 minutes of market close.

Usually, when I make money on a butterfly, I’ll make 2X or 3X. However, the only way to get max profit on a butterfly is by pinning it — by picking the exact right strike and having the ticker trade exactly to that price on Friday, within 15 minutes of Friday’s close. 

So if it appears to be rather difficult to “pin” a butterfly, why did I decide to place another one after closing for 5X on Thursday?

Well if you look back at my trades in my Stacked Profits Mastery, or the Options Live Trading Room, or even my Five Star E-Letter, you’ll see there have been many times in a row where I’ve traded TSLA, closed out the trade on Thursday for a 3X or 4X, then the next day it would’ve been a 10X, and I’ve thought to myself, “Man if only I had stayed in.” This exact scenario actually happened to me the week before.

But on this particular TSLA fly… I was being greedy.

That’s what I did very wrong.

Back To The Loser

So I placed a butterfly targeting $2100. On Friday, I was ecstatic when I woke up to see that TSLA was trading at about $2080 ($20 away from my target). I watched it trade all day… and I was so sure it was going to close at $2100 and that I was going to get a ‘pin’.

The saddest part about this trade?

I was making about $2500 on this trade. I had only spent $4 getting into this butterfly, overnight, and it was going for about $21. So I had about a 4X to 5X on this trade. It was a great trade… so I said to myself, “This time I’m going to be patient.”

Then Something Terrible Happened

I was looking at TSLA and it had this 5 minute squeeze. And in typical fashion, I was doing the close in the Options Live Trading Room at the time (so a ton of people got to watch this disaster unfold before their eyes). TSLA was trading right around $2080, and  I thought, “Well surely this squeeze is going to fire along, and it’s going to trade up to $2100, and I’m going to have a perfect trade.”

I should’ve closed it out then… instead of waiting another 10 minutes.

Pretty much right at that moment, the squeeze actually fired to the downside… WITH high volume. (If you go back and look at the chart for this time, you can actually see it happen.) And BOOM… down it went.

Within a few minutes, I’d gone from about a 5X winner to having something that wasn’t even making money at all.

How?

Well, the thing with butterflies is, on the day of expiration they’re very, very volatile if the stock price is trading right around where your strikes are.

How This Played Out

What happened was that my long strike was $2050, my short strike was $2100, and my other long strike was $2150. So when this huge volume selling came in, that knocked the stock price down $40 in a few minutes, my long strike was no longer $30 in the money. 

Why’s this matter?

When you have a long option that’s going to expire in 10 minutes, it has NO value if it’s out of the money. So I immediately went from having a profitable $2500 trade to having to close out my trade for break-even within a span of 10 minutes… with a single bar.

It was tragic… and tons of members got to watch me experience it live (some of them were also in the exact same spot I was). And it’s a perfect example as to why I really never hold my trades to Friday expiration. Normally I close them out Thursday evening or maybe Friday morning. With a butterfly at Friday expiration, it can just get extremely volatile, extremely quickly.

It comes down to a lesson in not being greedy. Had I closed my trade out Friday morning, I would’ve walked away with about $2400, instead I walked away with nothing.

16 thoughts on “TSLA broke my heart, live”

  1. Danielle: I have been trading butterflies for many years and have found a cool adjustment technique which will allow you to take your initial capital and as much of the 2400 off the table as you wish but also allow you to hang in there for the pin on expiration day. If you are interested email me back. Scott

    Reply
  2. Thanks for sharing your experience Danielle! I find the story all-too relatable to myself, where a regretful trade makes me wince in pain. On the positive side, a look back at the loss or break even trade again is the right thing to do. I’m glad the community (myself included) can learn from your shared experiences.

    Reply
  3. I had the perfect trade, 1990/2050/2100, but sold early for less than $2500 before its run to almost $6000 at exactly 2050 at expiration! So I feel your pain, sort-of, lol… well, not really; a gain’s a gain.

    Reply
  4. As someone who is new to trading butterflies but not to trading options thank you for sharing this real lesson. It takes courage to admit especially in a world of so called guru papertraders. Take solace that for me and hopefully many others will heed this painful lesson and avoid experiencing it first hand. A good lesson indeed on greed and Friday volatility.

    Reply
  5. Had this same scenario take away profits many times in past trades. That’s why I scale out and leave only a small position for a potential pin. It would be nice to have on 2 Flys and cash one out while leaving the other for a potential pin but this may not always be possible if the cost of a single fly is 5% or more of your trading account from a risk standpoint.

    Reply
  6. That’s what always happens to me hold it and it goes down or Sell it and watch it go up. Have a great day and hope Powell doesn’t ruin the week

    Reply
  7. very honest in sharing the loss trades too. not many have guts to share the loss trades 🙂 But we all suffer this almost every week.
    Stay Strong and there will be next trade soon

    Reply
  8. Thanks for the education. If this did not happen to you before is becasue you did not trade enough. This experience happens to everyone. However, we continue to learn about it. Your approach to solve the problem is the preferred one.
    The butterfly spread is very confusing on obtaining profit. Can you prepare a video on the exit strategies including the best time, or price action to exit?

    Reply

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