Josip Causic

Bear Call Spreads Gone Bad

    Tweet This

Free Trading Guides

The reason why that would be the case is the following: The breakeven point (BEP) was $13.195 and the price has closed at $13.24, when the bigger number is subtracted from the smaller one (the closing price minus the BEP) or $13.24 - $13.195, we get the loss of only 0.045 cents; which is small.

Now, keep in mind that one contract controls 100 shares, and the student has 100 contracts, which is basically 10,000 shares. This means that the loss, which seems small, is in fact $450 plus the commissions. Once again, be aware of the position sizing when trading options.

Leverage is a two way street -- it can work for you or against you.

As the saying goes, "Wise trader learns from his or her mistakes, but the wiser one also learns from the mistakes of the other traders."

Please do not look down on other fellow traders; learn from their mistakes. Even if you lose money on the trade, do not lose the valuable lesson that the trade had. Go over your bad trades and learn from them. It is painful but it is worth it.

Good trading and, again, watch your position sizing.

Josip Cusic is an instructor with the Online Trading Academy. To learn more about him, read his bio here

This article originally appeared on The Options Insider Web site.