Google (GOOG) blew away the estimates and it resulted in a missed opportunity for me to convert $0.60 into $25.00 i.e. over +4,000% for one day holding. Regret!!! It can cause more damage then one can think of.

I like playing earnings on expiration day and this time was no different except that I wanted to close prior to earnings. So I chose an alternate way to play earnings. And never I felt such a strong regret, not even when I came to know that property I sold has gone up by another > $100,000 since I sold it. Such powerful are emotions when we are dealing with financial markets. Regret, it can cause more damage then it seems. So I thought why not turn this into a lesson and capture my own emotions that I went through, however tough it may be.

• The regret, at first, made me feel stupid to miss such a big opportunity as if I were there and missed it by few minutes.
• For several hours, I couldn’t take this away from my mind. It didn’t let me realize the nice one day gains I had on my other positions. The ‘000s% loss, ahh, The Regret suppressed The Joy.
• I then, momentarily though, promised myself that I’ll play again in the next quarter and and leave my positions open for the next day.

Now if I stopped there, it would have caused more damage. So I decided to analyze “Do I really have the right to feel regrettable?” It was interesting, enjoyable and insightful to analyze my own emotions, probably you may draw some insight as well.

1. “Income Trader” and “Speculative Trader” are two different characters with different mind sets. Over the course of several years, I have become an income trader and less aggressive vs. my earlier “speculative” mind-set. This, therefore, by human nature, stops me from making large speculative bets and triggers me to book profits quickly. So I wouldn’t have played with significant amount.
2. Due to my market neutral approach, I didn’t get into detailed analysis like before. Else how could I have overlooked the fact that in the middle of last quarter Google changed the formula on how they pay for adsense and my adsense earnings were halved. Since I didn’t do detailed analysis, in all likelihood, I would not have played a lot of contracts in this case too.
3. Even if I would have researched, the chances of winning in earnings are 50/50. I could have easily been on the wrong side, meaning to lose all. It has happened before and has happened many times. Just this week alone. So due to #1 and this point, I would probably have played any of the neutral strategies to make money on either side and the gains wouldn’t have been so dramatic.
4. Even though IVs were reflecting a big move, Google has never done this extent before i.e. Absolute $75 dollars movement post earnings. So even if I had played, I couldn’t have imagined such a huge move. (Ironic as it may sound, it’s me who had expected a huge move against conventional wisdom and also said If it never happened, doesn’t mean it can not happen or it will not happen).
5. The % visualization is based on after hours trading. I have seen, less often though, that things completely turns around by the next morning before market opens. In the past my joy was evaporated when it happened with IBM, QSII in my real money account. Even before market opens, I dreamt of missing opportunity to make 4000% and undermined the consistent performance month after month I have as income trader.

According to “Neuroeconomic” studies, it has been found that The Regret is even likely to be hotter and painful when the outcome appears to have been caused directly by your own actions, not by circumstances that seem beyond your control. It goes beyond to say that “Counterfactual thinking (If only I had…or If only I hadn’t…) creates an alternative universe in which the outcomes are always knowledgeable and the right thing to do is always obvious.

Net, I don’t think I would have made as significant gains as it now seems in “Hindsight“. Shall I play Google (aka earnings) again? Yes, I shall do it again. How..I want to play it for free and I think the experiment I did revealed me some insights that I shall share some other day.

I shall encourage my readers to analyze and record your own “Regret” emotion as well, if and when you went through. This will help you discover more about yourself and how your trade decisions are influenced by your past regrets.

I hope you found this post useful, let me know your thoughts via comments, probably there are things you can share that others may learn from.

Profitable learning, OP