May was a difficult month for me.
There’s no sugarcoating it … I forced some stupid trades and took painful losses.
Heading into June, I need to regain composure and confidence.
I know myself. The best way for me to bounce back from poor performance is to wait patiently, then execute on high-probability setups when they present themselves.
And this is exactly what I did on Friday by opening a sizeable new puts play.
But by the middle of the trading day, the chart was looking stronger. I had to decide whether to hold or not … and quickly.
Keep reading to hear my full trade thesis and how I decided whether to hold or not…
Trading a Familiar Favorite
Anyone who’s followed my trading for a while now will know that I have a long and storied relationship with Nvidia Corporation (NASDAQ: NVDA)…
Why do I love trading NVDA so much?
Because it’s a top-ten market cap corporation that often trades like a Reddit meme stock.
The price swings in NVDA can be enormous, which means potentially extraordinary profits for options traders who time their plays to perfection.
I’ve had success trading NVDA in the past. In April, I bagged a 50% win by trading NVDA puts.
So, last Friday, as the chart showed me some unignorable topping signals, I was looking to make a similar play with bigger sizing…
I bought 50 NVDA 6/9/2023 $390 Puts for $7.70 … a $38,500 bet!
But by the end of the day, the technical indicators were turning against me. I had to decide whether I wanted to risk nearly $40,000 over the weekend or cut the position before the close of the week…
Holding vs. Cutting
Every trader faces this conundrum from time to time … to hold or not to hold?
Holding vs. cutting is one of the most difficult decisions traders have to make.
And this is exactly the decision I was faced with trading NVDA on Friday.
I had strong arguments for both sides.
Let’s break them down…
The Case for Holding NVDA Puts
- The 14-day RSI is above 80 … the highest level since 2020!
In general, an RSI below 30 is thought to be oversold, while an RSI above 70 is thought to be overbought. A reading of 80 means the stock is extremely overbought!
(WARNING: The weekly RSI is the highest ever for the stock!)
- The stock is trading below the all-important $400 resistance level…
You should use key price levels like this to help you enter and exit your trades at the ideal time. When a stock has trouble breaking a major resistance level, a big move to the downside is often right around the corner!
- The C3.ai Inc (NYSE: AI) party is over!
AI, a stock that has traded in sympathy with NVDA, got destroyed on Friday … down more than 8%! This could be seen as a leading indicator of what may happen to the NVDA chart next week.
The Case for Cutting NVDA Puts
- Minimizing risk
When I’m not trading my best, I usually look to reduce my risk, especially over the weekend. While this setup is promising, I can’t help but consider my recent performance when evaluating the future of this trade.
- No weekend stress
Holding positions over the weekend can be stressful. I know I’ll sleep like a baby if I cut the position, but I’ll also miss the chance to potentially profit.
- Avoiding potential short covering
I’m not the only short-seller trying to catch the downside in NVDA. And with this many traders having their eyes on one setup, there’s a risk of massive short covering into the close on any day. By cutting the position near breakeven, I would avoid such a disaster.
My Ultimate Decision (and How I Made It)
This decision was a buzzer-beater. I was debating whether to hold or cut all the way up to the close on Friday.
Ultimately, I decided to hold…
The cases for holding I laid out earlier played a role in my decision.
But the most important factor was something I wrote about recently … the psychology of regret.
I remembered that the regret from inaction is greater than the regret from misaction.
In other words, I’ll be more upset if I cut the puts, only to watch NVDA get destroyed on Monday, than I will if I hold and take a loss next week.
I’ve taken losses before. It’s nothing new to me … But I really hate missing trade opportunities entirely.
Trading is a game of decision-making, and I had to make a tough one on Friday.
I’ll have to wait and see how NVDA trades today to see if my choice was correct or not.
But I hope walking you through my thought process helps you face similar decisions in your own trading.