It isn't all sunshine and rainbows when riding trends. Sometimes, it's all blue skies overhead. Then a sudden wind out of the north catches you by surprise, and before you know it, you and your stock position have been blown over.
Check out what happened to Broadcom $AVGO shareholders this morning:
Anyone who bought $AVGO and was riding that nice 3-4 day move higher and still holding their position got rugged this morning.
Ouch.
If you bought stock and you had a stop loss at say, $471 -- which was the low of the previous two days? Well, you got filed this AM below $415. That was a much bigger loss than you likely bargained for.
This is where options show their strength. Yes, if I was long call options at the close yesterday, I too would've suffered a loss today. But the difference is -- my risk was always defined to the price I paid for the options. Nothing more.
Regardless of how far the stock gaps down through levels of support I thought would stick, I can never lose more than what I paid for those calls. And assuming I sized my position in a way that a 100% loss on my calls wouldn't be anything more than a flesh wound to my account, then all good. I pick myself up and find my next trade.
Staying in the game is its own kind of flex. Don't let any one position take you out of the game. Options help with this.
