Every once in a while, I’ll put on what I call “all or nothing” trades.

What this means in practice is that I’ll put on a defined risk options trade knowing full well that the trade is either going to net a profit, or it’s going to be a zero – a full loss of invested capital. There’s no in-between.

Usually, this happens because I love a setup, but the price level on the chart that would invalidate my thesis is pretty far away. If we get there, it’s more than likely that whatever premium I paid to enter the trade will have nearly evaporated. There will be nothing left to sell, even if I want to.

Two trades with March expiration options have concluded for me this week that demonstrate the yin and yang of these types of trades.

On Feb. 14, I put on a bearish bet in Hormel Foods $HRL. I bought the March 25 puts for 15 cents. This trade was put on at a time when I was looking to add some bearish exposure to my portfolio to help balance out the heavy long exposure I had in other positions.

Here’s what I said about it at the time: [Read more…]