I love to share my favorite sayings when it comes to option trading with my students. These mantras have helped me solidify some principles I needed to reinforce. And lately, there has been one in particular that I have stressed to my students, especially in this volatile environment: If you are down more than expected on your position and you get back to breakeven, always close out that position. Let’s take a quick look at what I mean by this because it might just make a difference for you too.
What Does It Mean?
I learned this saying from my mentor over 20 years ago. It may not make sense at first, but the more you trade, the more it probably will. Essentially, I am saying that when your position is down more than you accounted for and you are fortunate enough to get back to breakeven or close, exit the position.
This is a situation I found myself in many times as a new options trader, and being down more than expected may not always be your fault. Maybe you managed the trade based on technical analysis and the position was underwater a great deal, or a gapping underlying could have caused the situation too. But if you are fortunate enough to get back to being flat, don’t push your luck any further. This mantra has served me well in the past and continues to do so no matter what environment we are dealing with.
Heed My Advice
I have many sayings I like to drill into my students’ heads to make them better option traders. And I’m sure there are plenty more you can come up with as well. Feel free to use mine and claim them as your own and create your own too. I am here to help you become the option trader you know you can be.
