? I’m Losing 40% of my Portfolio – What do I do now? ?

May 21, 2020

9 min read

Dear traders,

Your account is spiraling down. It’s a devastating scenario… What can be done?

Often at my American Options courses, my students approach me during a break and ask me what to do when they have lost more than 40% of their portfolio value.

Our ecs.OPTIONS expert Marco Doni explains what traders can do in these worst case scenarios.

Long-term Portfolio Strategy

For me, the problem with these losses is obvious. There is no long-term portfolio strategy in place.

Without a plan for your portfolio, the level of loss could become catastrophic. This is unacceptable and this could have been avoided. My reply is always the same—why did you let this loss become so huge?

Typical answers range from:

Surely, it will increase sooner or later;
They told me that we are in period when everything will go up;
I didn’t want to accept so much of a loss;
I thought I could manage the loss.

But that will not change the situation. What is done, is done. The loss is there.

Instead of remaining a passive viewer of the “red candlestick chart,” what could you have done? How could you regain control of the situation at hand?

Well, there is good news! Something you can start doing immediately is American Options. But only if you understand what tools and how to apply them.

With the right training and education, you too, will see the importance of using the Options tool in your portfolio management.

Step one, acquire the skills and knowledge about trading Options.
Then for step two, you can incorporate them as an effective strategy to mitigate losses.

The difference between a traditional and a sophisticated investor (one who loses little) is that the latter understands how to use American Options. If you do not want to invest in training, then my advice is not to invest or trade in the markets at all. The cost of ignorance is much higher.

Short-term Approaches with Options

But let us come back to our poor students. First, I ask whether their securities have Options available. If so, then they are on the right path. Otherwise, if you don’t have Options, then your ability to mitigate the situation is severely limited.

With Options, you can take action to limit the loss. When you buy an Option, particularly a put, it will offset the loss and begin to gain. As the stock continues to depreciate in value, the Option will compensate and in essence, “stop the bleeding” (a common, yet crude American saying that gets the message across).

So, what else can we do?

At the same time, with another Option strategy called a Covered Call, you can make a sale transaction, according to the number of securities in your portfolio.

To complete this transaction, it is necessary to own at least 100 securities in your portfolio. With the sale of the Option, it will generate a credit that over time will compensate for the previous loss.

The great thing about this trade, thanks to the weekly expirations, is that you can repeat this process with Options every 15-30 days, and thus cashing in the credit each time and decreasing your loss more and more!

Now I imagine your face with a big printed question mark…What the hell are you saying, Marco?

Let me try to explain it to you, in non-financial terms. Suppose our securities are equivalent to owning an apartment and an unexpected event occurs, like a flood or fire. This resulted in structural damage and an overall loss of value.

What could you have done to stop this loss?

First, you could have taken out flood insurance or fire insurance, to protect yourself. So in the event of disaster to the property, your insurance will compensate for your loss.

In another scenario, if you decide to rent your place, then the rent collected is equal to receiving a credit each month, towards your mortgage.

Is that clear?

I think so. By applying this strategy of protection and rent, it is possible to decrease the losses on the ruined portfolio slowly and, at the same time, avoid further losses.

This is only possible, if you know Options and understand their dynamics, so you can make the best use of them.

In addition, with Options, you can implement strategies and increase the performance of your portfolio. This is achieved by exploiting not only the direction of a security, but also the volatility and especially time.

It is like becoming a painter who used to paint in black and white on canvas, now finds the beauty of using colors with all shades.

How to Start with Options!

Thinking about options but not sure yet? There are a couple of ways to move forward before committing to the course or educational signal service. Here is how you can stay in touch:

Join the free ecs.OPTIONS telegram channel
Sign-up to the ECS newsletter with trading ideas in your email inbox
Join the free live webinar options webinar with Marco & Chris

If you are ready to move forward, then you can choose from:

€899 one time fee for Options course in English – this includes 1 month of option trading ideas (option.SWINGS).
Option trading ideas (option.SWINGS) – experience is required:
€97 per month (including VAT)
€289 per quarter (including VAT) – receive 1 month for free for a total of 4 months
€899 per year (including VAT) – receive 2 months for free for a total of 14 months