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 WEEKLY OPTIONS EXIT STRATEGY

by Ian Harvey

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.

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 tolerance?

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 PROFIT”

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.

USING STOPS

Another aspect of weekly options exit strategy is the use of stop losses, These are a protective mechanism that are worth considering when your trade has 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.

Either place 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.

EXIT SIGNALS

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.

If these strategies are not possible, I take my profit and move on to the next trade!   

WEEKLY OPTIONS EXIT STRATEGY FOR LOSING TRADES

Another 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?

Stock 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 day.

Once you 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,




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