Always Have an Emergency Plan

• Posted by Greg Harmon
• on March 12th, 2012

I learned a lesson Friday. Thursday afternoon I put on a trade on Zumiez, $ZUMZ, for earnings, knowing full well I would be getting on a plane that afternoon. I thought he stock would rise and bought the stock with a collar, selling the upside April 35 Call and buying the downside March 30 Put. With the stock near 30 and the collar giving a 10 cent credit it seemed like a great trade (I have unlocked the details of the trade idea in the link below). But to be a great trade you need to be able to execute not just into the trade but out of it. Knowing I would be traveling I made no appointments for the first hour of trading and made sure that the hotel had Wifi connections. With that done I was comfortable taking the trade. My strategy was to take off the collar immediately if the reaction was in my favor, so selling the March 30 Puts and buying back the April 35 Calls. It was the right plan and turned out to be the correct analysis. Except for one thing. As I loaded up my laptop the hotel network would not let me connect. I was traveling with a group and someone else had booked the rooms so using my name in the hotel network sign in page did not work the first time. No big deal I would log out and back in with the proper credentials. I did not get a second look at the sign in screen.

I could have executed my plan and sold the March 30 Puts for 25 cents and bought the April 35 Calls for $1.25 near the open, a net of $1.00 and then continue to ride the stock higher and sell at 34.46 as I eventually did Monday. That would have been a $2.11 gain. Instead the Puts bleed to no bid fast and the calls crept higher as I battled the laptop and hotel Customer service line. Was there an alternative? Yes, 3G hot spot on my phone for one. The point is I had not thought through all of the contingencies and it cost me. In this case I managed to get out Monday with a $1.11 gain, nothing to sneeze at. But it opened my eyes a bit wider. Is your trading plan really completely thought out?

ZUMZ Premium Earnings 3-8-12

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