The Worst Trade of My Life

dave manuel and the worst short sell trading of his lifeEvery trader has a trade that sticks with them for a very long time. A trade that they will always remember every vivid detail of, a trade that will haunt them for a lifetime. This particular trade left me lying down on the floor of my apartment, wondering how the hell I hadn't gotten so deep into it and how the hell I was going to get out of it. The stock was ASYS. It was the summer of 2000.

Back then the stock market was still super frothy. Sure, the bubble had started to pop but there were still huge amounts of speculative money in the market. On any given day you had a number of small-cap stocks popping 100-300% for a wide variety of reasons - CEO on CNBC, some day-trading chat room picking up on the stock, or maybe a company's stock was picked up as a sector trade.

That's what happened with ASYS. Fiber optics stocks were BIG in the summer of 2000, and people realized that ASYS had exposure to the sector. It was a small-cap company that hadn't done much previous to this, and wouldn't do much after. However at the time, the stock was red-hot due to its ties with the fiber optics sector.

On August 16th, 2000, the stock spiked from a previous close of $4.38 up to a close of $10.00 on big volume (5.5 million shares traded versus normal daily average of 52,900 shares.) The next day, the stock continued to trade higher, this time closing at $14.62 on even heavier volume. I had been shorting shares over the two days, and I believe my avg price was $11.50, and I had about 1000 shares short. So at the end of August 17th, I was down about $3k but not sweating it too much - these speculative run-ups had a way of crashing fast, and sometimes you just had to stand your ground. There was no way that this stock would maintain a 300% increase over two days, I thought to myself.

The next day, Aug 18, ASYS ended down over $2 and I thought I was in the clear. Normally with these big run-ups, as soon as there is one down day, all of the day-traders bail and the stock really tumbles. I figured that this stock would be trading sub-$10 in just a matter of days.

On August 21, the next day of trading, ASYS hit a low of $11. I remember wanting to cover the stock and just take a small profit, but I decided to leave the house and go get some food and cover later, fully expecting it to be trading even lower when I got back. I believe that ASYS released some piece of news that caused the stock to close the session at $14.25. I was pissed, but it wasn't the end of the world. I thought for sure that this latest rally wouldn't last.

The stock traded a few dollars lower over the next few days again, closing at $12.56 on August 23rd. I was sure that the stock was going to slowly crash and burn. Volume would dry out, and people would forget about it. I was sure that it would trade back down to $8 or $9 in a month, and I would bank an easy $2500 - $3500 profit.

My worst nightmare became a reality on August 24th, 2000, when daytraders REALLY picked up on the stock. I remember Waxie from recommending the stock to his members, and the share price really spiked. It hit a high of $26.50 on August 28th. At that point, I was down about $15k on the position, and having nightmares about it trading up to $100 and completely wiping me out. I remember lying down on the floor of my apartment, just staring up at the ceiling, having no idea what to do. Cover and take a loss of $15k? Hold? Cover some?

I decided that I was going to cover the position. A $15k loss would be terrible, but at least it wouldn't ruin me. I got to the computer and froze. Everything inside of me was screaming that this was a slam-dunk short, and that I should hold. I did.

The stock finally came off of its highs, and daytraders slowly lost interest. The next few weeks were extremely painful, as the stock slowly traded down, day by day, but there was always that fear that I was one press release away from seeing my position move even more into the red. On September 14th, the stock closed at $15.62. Once October came, volume really started to dry up and the stock tumbled. I covered on October 6th at $11.75. I took a loss of $75 on the position. If I had covered earlier, I would have taken a loss of $15k. If I had waited, and covered on October 13th, I could have banked a profit of $4k, as the stock tumbled to the low $7s.

This trade took years off of my life, though I learned a lot from it. The fact that I gained a bunch of gray hairs definitely makes it the worst trade of my life, even though I only lost $75.

Filed under: General Knowledge

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