Stock options trading has been available for almost 40 years. Traders have developed an understanding of options trading which have produced options trading strategies.
This may sound like talking in circles but think about it. Without the ability to trade in a particular security there can be no strategies. It is strategies that produce profits and by default losses.
This article does not talk about losses as the author believes losses speak for themselves. On the other hand, profits can be elusive and must be guarded with a vengeance. Hence this particular profit guarding strategy.
It happens all too often a trader is in a very good profit position but lets it slip away due to inattention or belief it will go higher or some other rationale. This strategy will prevent that from happening.
This strategy is also applicable to online options trading. After all, a profit is a profit no matter where generated. In the options world, a profit can happen in a matter of minutes so it is best to protect it.
Stock traders have been using this strategy for years. It has paid off handsomely.
You put a trailing stop-loss on the underlying security. Traders use different percentages for their stop-loss point. Probably the most common number is 5% because it keeps a high percentage of the profit intact. Anything higher could drastically cut into the hard earned gain.
Math wise it looks like this using a $50 stock price. 5% of $50 is $2.50. Therefore your stop-loss number would be $47.50 (50 - 2.50). If the stock price slides to $47.50, you would execute your trade and exit your position with profit in hand.
By no means is this a hard and fast rule because there are times when a tighter stop-loss is appropriate. Your options trading system should tell you what is and what isn't appropriate for each particular trade. That is why you have your system in place.
Remember, you are dealing with options. When the market turns against your position, all of your profits plus some or all of your capital can evaporate quickly. You have to act fast and not be hesitant to pull the trigger.
You never go broke making money. You want to profit with options trading strategies. That is why you implement them in the first place. Pay attention to your strategy, watch the market and take action. This should make you money in the long run.
Options trading no longer has to be a losing affair. What would you say if I told you two professional, highly experienced, successful traders would tell you to buy and sell the same options when they do? Well it's not a dream and I'm not pulling your leg. Start making successful options trades today. True story.
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