When bad things happen: Rug Pull Edition

This morning it was my turn to get the rug pulled out on a position that was doing well; Cal-Maine Foods ( $CALM )  This morning in my blog post, I noted that $CALM had been doing well. My long options position was up 11%.  Not monumental, but green during the recent market turbulence isn’t all bad. Not long after my post the market opened and the floor fell out of Cal-Maine. Down 10%. That’s a lot for any stock. I still have not found any real news.   #$%# happens!!

Holders of Drug Distributors ( $CAH, $MCK, $ABC ) and Drug Retailers ( $WBA, $CVS ) know what I am talking about. All those names got their rugs pulled out when Amazon entered the drug space with the purchase of PillPack. A fellow trader friend of mine was lamenting that he just entered $WBA a couple of weeks ago and the chart looked good.  Rug Pulls don’t consider chart patterns. Lots of value was destroyed today on that news.

Expect the Unexpected – Manage your Risk
“Expect the Unexpected” is one of those phrases that are often thrown out there almost as a throw away line. Everybody shrugs their approval then move along.  When it comes to the stock market, the phrase speaks to risk. Unexpected news, flash crashes, Trump Tweets, drug trial failures etc happen and you never know when or from where it will come or how bad it will be. Daddy, where were you when the terrorists unleashed a dirty bomb on the doorsteps of the NYSE?   And why do we live with Grandma now?

I learned my Lesson
Bad things don’t always happen to someone else.  A few years ago I had a tiger by the tail. Gilead $GILD was going to the moon and I was hitching a ride. I had a very over-sized position. Stupidly oversized. I was lovin’ the ride.  Then one day $CVS announced that it wasn’t going to include Gilead’s super Hep-C drug in their formulary due to it’s price.  Gilead dropped 20% in like 5 seconds.  That stock has not been the same since.  When #$%@  happens on an over-sized position it is a mortal wound.  I lost body parts. When the unexpected happens with a 1%, 2% or even 5% position, it hurts, but you will get over it.  Manage your risk!  I learned my lesson.  Cal-Maine hurt me today, but as a 1% position, all I will do is shrug my shoulders and move on.

Sidebar – Be wary of crowing about wins
Although posting about a suggested trade and subsequent winning position can hardly be called crowing, I’ve noticed something. Rug Pulls seem to follow folks who talk about their winning positions.  Maybe a silly superstition, but its happened more than once or twice. It’s happened to me and friends of mine. I don’t open my mouth about anything. Do me and yourself a favor, if you feel the need to crow about a win, do it after you’ve closed it.  Otherwise the market might close it for you.  It’s my responsibility here to report on wins and losses, but you wont hear me say much or tweet about it. I learned my lesson.

Happy Hunting and Good Trading

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