Options: Descent into the Abyss. April 2015 Biogen (BIIB)

First, I was making good money with writing Put options. My friend jokingly challenged me to make making $10 a day ($3,650 CAD) and I accepted. Then I got greedy and was knocked down hard.

I can still remember going to a friend's birthday party and meeting her mom. This woman was a teacher and quit her job to trade full time. Her brother and another relative were also traders. Completely different from my friend who is absolutely not interested in the markets. I listened to what the mother was doing and was intrigued, but shocked as she told me about writing uncovered Puts on Biotech stocks for the last few years since 2009.  Keep in mind - it was during that conversation when Biotech sector was breaking down faster.  I was already successfully writing Puts on Canadian stocks; keeping the discipline by focusing on stocks that I would want to own and managing risk by maintaining levels of exposure to Put assignment.

Then about a week later Biogen (NYSE: BIIB) dropped significantly and I saw the extremely juicy Put premium.  The thought went through my mind "I can can do this, the stock will bounce up if I catch it now." I checked my available USD to confirm how much I could risk if I needed to buy back the Put and then I jumped in with a "conservative" toe dip.

It didn't take long to start losing money on the first moments after writing. It was a Friday, so the thought was "the market will calm down". I managed to hold on for another couple days after the weekend. Then almost 50% down.  I looked again at my reserves and saw I could afford to double down and hope for a recovery.  That definitely, did not happen as the stock continued to drop and I forced myself to get out before I blew through all my USD reserves.

Below is a table of my BIIB Puts:

Date	Symbol	Type	Expiry	Strike	Quantity	Avg Share Price	Gross	Commission	Net Return	Net Amount	Exposure	Net Revenue	% Gain/Loss
2015-04-24	BIIB	Put	05/29/15	380	1	$4.5800	$458.0000	$10.96	$4.4704	$447.04	$38,000.00
2015-04-28	BIIB	Put	05/29/15	380	1	$11.8000	$1,180.0000	$10.98	$11.6902	$1,169.02	$38,000.00
Total	BIIB	Put	05/29/15	380	2	$8.1900	$1,638.0000	$21.94	$8.0803	$1,616.06	$76,000.00
2015-04-28	BIIB	Put	05/29/15	380	2	$15.8000	$3,160.0000	$11.95	$15.7403	$3,171.95	$76,000.00	-$1,555.89	-96.2767%

April 24, Friday: Wrote 1 Put expiring May 29.  Premium: $4.58.
April 28, Tuesday: Wrote 1 Put expiring May 29.  Premium: $11.80.

Average Premium: $8.190

With 2 Puts with a Strike of $380 I had a total equity exposure of $76,000 minus the premium.  An amount that I do not have enough funds to cover and would definitely not be willing to risk.  However, in terms of the cost of Buying back the Puts, I had enough USD in reserve. As the day wore on BIIB declined further and I was forced to close out my position.

Loss: -$1,555.89 or -96.2767%

Ouch.  Definitely made someone's day there.

Lesson learnt, stick with the game plan.