“Shorting a stock without protection is like fucking random men from Tinder without protection. It is dangerous and you are forbidden from doing it!” My dad told me over the phone. He called me because he was disturbed by my portfolio’s poor performance. He had been putting off logging into my brokerage account for months because he was afraid by what he would find. Last week, when he was transferring me fresh funds, he finally saw the damage. He says giving me money is like trying to fill a bucket with water, except the bucket has a leak in the bottom. I am the leak. All I do is lose.
Not surprisingly, I am banned from trading the new capital. My dad is planning on using it to buy SPY for me over the course of the year.
Aside from the declining value of my account overall, my dad was most worried about my recent botched NKTR short trade. He said “it’s ok to make mistakes, but when someone makes the same mistakes over and over again, she should not be allowed to trade.” I’ve made the error of averaging down on a losing position ($DRYS) last year, which cost me 18K, and I promised I would never be so reckless again. With NKTR, I averaged up on an exploding short, and am now down a painful 5K.
Here’s what happened: on November 07, I shorted 100 shares of NKTR at $26.95. Over the next week it proceeded to rise 70% to the mid-forties. I remember feeling grateful that I “started small.” On November 16th, I decided to triple down by shorting 300 more shares at $44.50. I don’t know what the fuck I was thinking. Oh wait I do. I was thinking: “NKTR will now fall back to $20. Why? Because I fucking want it do.” I wish I were kidding, but I must have truly felt that I was God. Or else I would have put a stop loss. My 400 shares of NKTR (almost a 20K position) steadily climbed to 49 a few days later. I was a Nektarholic in denial. On Wednesday, November 22, I got my dad’s permission to short 200 more shares at $49.11 with a stop order at $50.11 for a max loss of $200. Consciously or subconsciously, I set the order to expire at the end of the trading day. On Friday morning, much to my premature delight, Nektar was 5% down in pre-market trading on a failed phase III study, but the drop was short-lived. NKTR bounced back from that like a fat kid on a well-made trampoline. I ended up covering my short at $51.19, losing about $400 instead of $200 as I originally intended. NKTR closed on Friday, November 24 at $52.70. My total paper loss is $5,404.75.
Here’s what I should have done: I should have set a stop loss on my initial NKTR short. I should not be willing to lose more than $700 per trade or else my capital will shrink too fast. Given this rule, I should have set my stop $7 or 25% above my entry of 26.95, which would have been triggered at $33.95. I would have been out of the trade and down a mere $700. I would have re-entered at $44.50. Once again, by putting a max loss of $700, I could have shorted 100 shares with a stop loss at $51.50. This price would have been triggered on Friday. In total, I would be down only $1,400 instead of over 5 grand.
I don’t get upset when I lose money. I have no problem making fun of myself and I have no problem with friends telling me I’m being dumb. But when my dad yelled at me over the phone last week, I felt depressed the rest of the day. I think this may be because I respect my dad a lot, so when he believes in me, I believe in myself. Last Wednesday he told me, “it is clear you cannot make a profit from trading.” While his criticism is 100% warranted and objectively correct, it nonetheless hurt my feelings. It’s not easy to hurt my feelings, but my dad hurt my feelings. Family is fucking weird—so inevitably personal, so miserably intense.
I know as much about the drug industry as I know about being a Victoria Secret model: zilch. That being said, here is my NKTR short thesis: NKTR-181, a pain-killer with a slow-release mechanism is no fun, because the majority of patients just want to get high off their prescription drugs (or maybe that’s just me). NKTR-214 has not yet been proven to work in humans—only non-human primates and mice. Saying it will be a success if like me introducing myself as a hedge fund portfolio manager. Lastly, the company sold its rights to NKTR-358 to Eli Lily for $150 million upfront plus up to $250 million in additional developments, so even if the drug becomes a blockbuster, Nektar’s gains are about as limited as the drink menu at a local Pyongyang restaurant.
I’m honestly not sure if I should cover my entire position on Monday and lock in the 5K loss. Nektar is not a scam. It’s a real, innovative, productive company that generates $200 million of revenue per year; however, it is grossly overvalued with an $8 billion dollar market cap. But does it fucking matter? Are overvalued and undervalued just buzzwords? All I know is The Market seems to be drinking the Nektar, and The Market has the final word.
I need to learn to surrender to The Market. Fighting is futile (and really fucking expensive).
P.S. I apologize in advance for the poor quality of the posts to come. I need to start writing about my trades to hold myself accountable, but I’m not sure I will have the energy to make the content entertaining. This blog is mainly for myself. And my poor, poor portfolio.