A solid weekly options exit strategy is
always important if you wish to maximize your profit and avoid losses! Any
trading strategy must be tailored to your profile as a trader, and the
conditions of the market and your position.
GET YOUR FREE WEEKLY OPTIONS USA TRADING NEWSLETTER
TAILORING YOUR WEEKLY OPTIONS EXIT STRATEGY
The first thing to do in planning
your exit strategy is to ask yourself the following questions:
Can you watch the market throughout the day?
What is your risk
How much capital do you have available?
How much time does your position have to expiry?
What is the
general market outlook for the day - positive or negative?
How definite is
the strength (for call options), or
weakness (for puts), of the
stock at the time of entering the trades?
PLANNING AHEAD IS VITAL
Plan your exit before you buy if possible.The reason
you plan your exit strategy before you enter a trade is because once you are in
a trade, your emotions will cloud your judgment.
If you entered an option based on a
specific profit target or profit range for the options position, and you hit
that target, then it makes perfect sense to cash out and exit, sticking to the
plan you already laid out.
“GREED IS THE UN-DOING OF A GREAT
MODIFYING YOUR WEEKLY OPTIONS EXIT STRATEGY
Another strategy you can employ if the underlying trend is strong
and may continue, is taking partial profits and/or modifying your position,
which could allow you to improve the overall reward-to-risk trade-off. More
specifically, modifications are often done to lock in profit and/or mitigate
risk, while retaining the opportunity for more gains.
Once an option doubles in value, you can sell half of
your original position and lock in a break-even trade at worst.
Another aspect of weekly options exit
strategy is the use of stop losses, These are a protective mechanism that are
worth considering when your tradehas gained value by 30-50%. It can be wise to look into
either protecting your profits or at least ensuring that you will not lose
money on the trade.
a hard stop at your entry price or set a trailing stop. This is more of an art than
a science. Each stock and each trade is different so it takes time to learn how
to properly set stops.
If you have time to watch the market,
and have the patience to handle the volatility, you only exit when the stock
gives you a technical signal to exit. This could be a pullback in prices,
stalling at support or resistance, or a number of other signals including overall
market pull-back or surge, some good or bad news and the opinions of analysts.
WEEKLY OPTIONS EXIT STRATEGY - A NOTE TO OUR MEMBERS
As to the exit price – it is "suggested not
obligatory" and is entirely up to the member - personally I would prefer
not to suggest anything but many members have asked for this. Every trader has
a different risk tolerance – some will get out at 20%, others 50%, whilst
others will ride the trade to the peak.
With many of the recommended “Weekly Trades,” they
usually move very quickly after the market opens, and if you can enter then and
ride the increase in the options price, a profit can be made in a very short
time – sometimes 20 minutes to 2 hours.
One of my favourite strategies is to sell quickly with
a nice profit, then re-enter the trade after the price pullbacks, or enter
again at a higher strike price.
strategies are not possible, I take my profit and move on to the next trade!
WEEKLY OPTIONS EXIT STRATEGY FOR LOSING TRADES
important exit strategy that needs to be considered is at what
point will you get out of the trade if things don't go in your favour?
options are extremely volatile. It's not uncommon to see your trade fluctuate
in value by 10-20%, or much more in this volatile market, during the trading
place your trade, place a stop-loss to close out your trade if it drops in
value by a certain percentage – as noted on your recommendations this is
approximately 60% - you may wish to do this for less – depending on your risk
tolerance. However, I set this percentage as I have found that the market can
fluctuate greatly over the time – up high one day, down low the next.
If I lose
60% of my invested capital, I cut my losses and I move on. That's enough of a
loss to tell me that either this is a bad trade or I was wrong on my timing.
It is vital not to dwell on the inevitable losses, but to get on with the next trade. So long as the percentages are in your favor, your strategy is working for you,