One of the things I harp on here is Best Practices. When I make it a habit to engage in best practices in terms of both strategy selection and position management, I put myself in position to win more often.
Best Practices skews odds in my favor. It keeps me from swimming upstream against volatility currents. It keeps my risk lower. It helps with P/L consistency. And it helps me stick with trades that still have time to play out.
Selling Half is a position management best practice I employ most often when trading straight long calls and long puts. I like to sell half of my position when the value of the position has doubled. It can be very tempting to want to hold your entire position if it quickly runs up and you find yourself sitting on tremendous profits thanks to the leverage inherent in long options. And certainly, there are times when I wished I would’ve just sat on my hands as I watched a stock continue to fly higher. But for every one of those times I wish I had, there are easily five other times I’m glad I hadn’t.
You see, when a position doubles or triples (or more) in size, the open profits are nice — but they are distracting. What??? Hear me out… [Read more…]