When it comes to trading stocks, there are some terms/jargon that you might hear, and once you learn what they mean, it makes you cringe a little when spoken.
Well, bag-holding is one of those terms.
Bag Holding In Stocks.
Bag-holding in stocks refers to holding under-performing stocks in the hope of a future increase in value to justify continuing to keep them or later selling the stocks without a loss.
An Example of Bag-Holding With Some Of My Stocks.
My Stock Holding Story Background:
I like crypto-currency.
Not because crypto is tangible, like a product, commodity, or owning a portion of a company, but because of the passion it creates in its owners.
I’ve mined my own crypto( Crypto Mined At Home ) and used Crypto Yield Farming( What Is Yield Farming In Cryptocurrency ) in the past, and in this case, I bought stock in a crypto mining company: Riot Platforms, Inc.
RIOT was an outstanding stock to sell PUT options against and frequently held its value with the sense of high-quality options and, of course, a crypto company.
How I Became A Stock Bag-Holder.
Well, one day, RIOT‘s stock dropped, along with BitCoin’s value. I was sitting in several sold Puts. They were Out of Money originally but soon were in the money.
I didn’t roll my position or try to buy out of it; I let the PUTs expire and was assigned the stocks. The RIOT stocks were assigned to me at a higher cost than the current trading value.
I held on to the RIOT stocks and felt that the crypto volatility would make selling CALLs worth it.
This event was back in 2022; since then, crypto prices, especially BitCoin, have plummeted.
Since then, I’ve kept those stocks, losing about 80% of their value(my assigned purchase price) and crossing my fingers that RIOT would increase to the point where I can sell it or justify holding the stock further.
I’ve become a bag-holder of this stock, RIOT. I’m sure you realized what I described was myself failing at the Wheel Strategy.
How To Undo Bag-Holding Stocks.
Much of changing your status in stocks becomes work of factors in and out of your control.
Out Of Your Control.
- Stock Value goes up, and the value of your holding stock is now worth it.
- Stock disappears. You were holding stock for a company that went out of business.
In Your Control:
- Sell the stock at a loss; you are no longer a bag-holder, but this is painful.
- Continue trading, sometimes ‘averaging down.’ You now buy additional stock at a lower cost, so your average cost decreases. It’s more of a psychological effect since you feel you are buying something on sale, and your average loss per stock drops.
However, this can be considered throwing good money after bad.
Consider all financial actions before doing so; the worst thing about bag-holding is having good money locked up in an insufficient stock. Worse is to add to this locked-up money.
Your Bag-Holding Stories?
Have you ever been a bag-holder of stocks?
I was with being assigned RIOT stock after selling Put options in my wheel strategy, and when I was sitting on Intel stock after selling a put option, or four, during another round of my wheel strategy.
If so, what did you do? Sell? Wait? Options Plays? Please leave a comment.
 Myself with an interesting Bull Sculpture. Notice: No Lambo’s. :/ | Hi I’m Tom, A Blogger And A PIG Farmer. PIG Farmer as in I grow Passive Income Generators(PIG’s). I’ve been playing with stocks, mutual funds, and options for decades, as well as always working on my side hustle stacks. Unlike what you read online, I’ve yet to find a way to get rich quickly. Get Rich Quick isn’t happening for me. My journey has been long and continues. I hope to have so many PIGs I can stop working at my current job and volunteer as a medical worker overseas. Still waiting, but getting there. I still am a family man, and while on this Journey of Growing PIGs. I wanted to share my adventures(ups and downs), hoping you will contribute with your feedback and comments. Fun Fact: In my spare time, I am a Band-Dad! |