  4: Basic rules of options investing (coming soon) 1. Use money management 2. If a trade moves quickly in the direction you predict, take the profits. If you put on a bull call spread on a stock, and it moves to your top strike price with several weeks left to go until expiry, close out the spread and take the profits. No sense waiting several weeks when 85% of the profit is already realized. 3. If a trade moves against you, don't be afraid to take the loss. The key to long-term success is never letting your losses get away from you. You can be wrong sometimes (the market, on the other hand, is ALWAYS right). Of course, if you are at maximum loss on a trade, for instance you bought a call and the stock promptly dropped 50%, might as well keep the option as a lottery ticket. 4. Time is a wasting asset. If you sell options, the calendar does not move quickly enough. If you buy them, time is working against you. 5. Always have an opinion on what the underlying stock will do over the coming weeks until the options expire. If you open an options trade, and you have no opinion on how the stock will perform, you're gambling. ©2001 xguru, Inc. A Cardinal Factor Company. All rights reserved. |
