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Dynamic position / profit management

Options Trading

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Dynamic position management

Recently, I received several questions asking: „How, and on what basis, do you manage your position dynamically?”.

Answering this question would take more than one article, but I am going to try to explain what I call dynamic position management. Let's take a look at the basics. Let's suppose you trade with stocks. You bought XYZ stock at 100 hoping that it will rise to 105. This really happens within a week.

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What does the stock trader do in this case?

He usually does the following:

1. takes the profit,

2. rises the stop level to 0, but he lets it run, perhaps it will rise further,

3. does nothing, he waits.

What is the problem with these choices?

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What is the problem with these choices?

1. The average trader usually avoids risk when making some profit and takes risk when sustaining some loss. Unfortunately, with this system, they take the small profit and let the big loss run. This leads to zeroing out the account systematically.

2. This is a kind of pretense measure, it does not save the profit. Why? Because if the stock opens at 95 next day, the stop (market) will be executed there. That means, it could not save the profit and it even worse, it resulted in a loss.

3. The worse - hoping for the better :)

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How does an options trader treat this case?

He modifies the original options strategy, thereby reducing the initial risk and further increasing the potential profit.

I had a CLF position earlier, where first I pulled the risk to 0, then I transformed it to a strategy that  had a guaranteed profit later on, moreover - in a given range - it brought 400% profit of the original risk.

There was no need to use stop, I did not run any more risks, the profit was guaranteed above a certain level, and it had further profit opportunities.

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What a huge difference!

I cannot put enough emphasis on this point: What a huge difference is there between trading the simple underlying product and its options as far as position and profit management is concerned!

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Imagine the following emotions

Imagine the following emotions:

-> you do not have to worry any more that your position will be closed by a stop,-> you cannot close a winning position with a loss any more, meaning you can rest easy,-> you know that your position has a guaranteed profit, your only concern is whether you can reach the maximum possible profit included in the given options strategy.Many of you may think that all this is too complicated, but it is not. You can learn this.

Dynamic position / profit management can only be carried out with the help of options.

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Feel free to ask me!

Email: gery@optionsrules.comMy webpage: http://www.optionsrules.com/

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Skype: opcioguru