Power To The Elbow

In my last post I speculated about selling puts in Upstart.(UPST) You can read that here. I concluded that despite all the headwinds and intrinsic problems with the company, the heavy short interest combined with the buyback program would bring enough buyers to the market in the event of a stock price dip that my short puts would stay out of the money or be easily rolled. 

Key to this strategy was the understanding that there wasn’t a known event on the calendar that could possibly trigger a big move in the underlying stock price. Wow, I couldn’t have been more wrong. 

All my research into the company showed no known events. I checked the company events page, the industry conference calendar, and researched all the historic price movements that would have been large enough to cause my puts to land in the money. I found nothing. Naive little me completely missed the giant macro event scheduled for the very next day. FEDERAL RESERVE POLICY ANNOUNCEMENT! 

I knew it was happening. I even listened to the anticipatory and speculative news coverage as I was placing my put orders. I simply failed to connect the dots that Upstart’s stock would be sensitive to federal interest rate policy. With hindsight, this was very dumb on my part and a completely logical connection everyone should make. 

Of course a company that makes all their money handing out loans would be impacted by what the market interest rates are. Of course a surprise policy shift announcement could lead to a 20% price move both up or down in Upstart. Shockingly, the price move that I didn’t see coming happened to be in my favor and my short puts expire worthless giving me my maximum profit on the investment. 

Some might say, it is better to be lucky than good. Well, this is not how I want to trade.

Being a success is going to take the time and work required to gather all the information. It will also take the smarts and common sense to interpret the information correctly. I will also need to have a better plan for loss mitigation for when I will inevitably miss the forest for the trees again.

What procedures do you follow so that you avoid these kinds of mistakes? I have thought about using checklists or peer reviews. Have you used either successfully? Please let me know in the comments.