Tips On Creating A Successful Stock Option Exit Strategy

Trading stock options is very similar to a fast ride which is trying to spin you off of it

. The faster the ride goes, the harder it is for you to stay on the ride. Stock options have a built in time decay. Just as the ride goes faster, so does the time decay as the expiration date gets closer. For this reason, many stock option traders will choose to get out of their positions before the expiration date. They will take their profits or losses and then move on to their next position.

Especially with stock option trading, it is important to know what your exit strategy is before you make a trade. For example, are you only going to be in the position for a set period of time? Another determination that traders will use is when a certain stock price is reached, while another factor may be when a certain technical analytic point is reached. Perhaps it is a momentum indicator such as the Bollinger Bands, stochastic or the DMI. Whatever they use, when this indicator light goes off, they are out of there.

When trading stock options, having a stop loss in place is an important strategy. If the stock price begins to erode, then you will be able to either take your profits or stop your losses. Being willing to stop your loss at a minimal loss is a valuable consideration. It is true that you have lost some portion of your investment, but it could have been worse. Having the courage to take your losses and move on to the next winner is a sign of a good stock option trader. If you do end up getting out of a position, do not look back. It is important to put it behind you and move on.

Closing out of your position is one stock option exit strategy. This involves the process of exercising or selling your call if you are long. If you are short, then closing out of your position involves covering your short sell by providing the underlying security to the buyer. If you have a profitable trade, then this process may be a happy event. If you have ended up with a loss, then it may not be so happy. In any case, you really have not much choice unless you decide to roll your stock option.

The process of rolling your stock option involves closing out of your current position and opening up a new position in the same underlying security. Purchasing a stock option for the same month is known as a vertical roll while stretching it across several months is known as a horizontal roll. If you feel that the stock price is set to move in a profitable direction, then a roll may be a worthwhile step to take. You will need to pay an additional fee, but it may be worth it if you make money from your investment strategy.

Being smart with your stock option trading strategy will help you to make money on your investment. One rule of thumb is that if you have seven losses in a roll, then you should probably get out of this type of investing until you obtain some more knowledge and experience. Knowing what your exit strategy is when you create a stock option position will provide the opportunity to remove your emotions out of your trading strategy.

I heard of one story where a stock option value jumped ten times. The investor wondered if he should get out or stay in and take additional profits. If you would not enter the position at that point, then it is probably a good idea to get out. Having a set exit strategy would have helped with that decision.

by: Garth Wheeler

POST COMMENT

Best Exercise Startup Tips For Weight Loss Success Updated Facts Tips To Give A Girl An Orgasm With Your Fingers - Make Her Scream With Pleasure All Night Long Tips To Eliminate Moles Naturally Learn How You Can Begin Winning The Lotto - Use These Tips Today How These Surprising Little Secrets Can Help You Win The Lottery - Follow These Tips Now Turbo charge your sexual stamina with these tips to prolong ejaculation Simple Tips That Will Help You Get Taller - Use These Methods Now Top 5 Tips For Taking Out A Loan Lose Those Pounds Extras With These Tips Tips To Lose And Keep Your Weight Advance Tips Tips To Get Your Ex Husband Back Zero Point Magnetic Power Generator - Top 10 Reasons to Build Your Own Beauty tips for summer