Today, I fielded a question from a trader who has a winning options trade on.
When he originally put the trade on, he didn't have a stop-out price in mind. It was a bit of an "all-or-nothing" trade. His risk is defined and he was comfortable with the fact that if he lost, he would probably be a 100% loser. Nothing wrong with this, as long as the position sizing is right.
Fortunately for him, the trade has gone his way and he's sitting on some handsome profits, yet the stock still has work to do to get to his profit target.
His question to me, paraphrased, is:
"I didn't originally have a stop for this trade; but now that it's winning, how do I determine if/when I should apply a trailing stop to protect my open gains?"
I'll classify this as a "first-class" problem. His issue is, how does he give this position as much room as possible to continue growing, while ensuring he can still escape with a profit if/when the trend ends?
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