Monitoring A Trade

For the more experienced traders of options, I offer the following:

The PUROSES of monitoring a trade are three fold:

a. If the trade is working AGAINST you, see how you can reduce your risk
b. If the trade is working FOR you, see how soon you can take profits, exit and take the risk off the table
c. If the trade is working AGAINST you, see how you can shift your risk to a different place and/or shift your profit bubble to where it must be to make money.

Fortunately, most successful traders have a standard ‘bag of tricks’ that they apply FIRST and FOREMOST to any trade.  These simple, but effective, tools might include:
• Give it more time for the laws of probability to take effect
• Roll out to the trade further away from the action or to a further expiration day
• Reduce your lot size (number of contracts)
• Close out the trade when a reasonable amount of profit has been achieved
• Close out the trade with a small loss and go find a better one
• See if a simple addendum trade can be added that will be more appropriate to the new conditions, IF that trade is of a defined risk and has enough time for the laws of probability to act
• Buy any short option back whose value has dropped to .05

Monitoring, then, can be the most crucial part of any trade.  BUT, you must be ready with specific action points of when something must be done, with specific actions to be taken when needed AND these must be set in your trading plan BEFORE you place the trade.

More later….