Secret 93THE 5 P’S
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If you don’t know where you’re going, you’ll end up
some place else.”
—Yogi Berra
The 5 P’s are Proper Planning Prevents Poor Performance,
or plan before you play. Good management is an important part
of option trading. Most investors enter the option game totally
unorganized. They have unrealistic expectations and don’t understand
the risk-reward picture of the strategies they enter.
To be successful, you need a well defined game plan of each
position you enter, written down in black and white (See Secrets
#29 and #66), and an overall game plan or strategic plan. This
plan, for example, would map out how many positions and what
kind of trades you will enter each month and each year. If you are
an option buyer, this is critical, for such a plan will force you to
stay the course and not quit and stop buying options when you
should be buying.
Such planning should lay out the maximum risks of the
trade as well as the profit potential. In planning your trades,
make sure each trade or strategy gives you a mathematical or statistical
advantage or some kind of edge. Set some overall profit
objectives, but make sure they are realistic.
If you do the proper options analysis, you will know how
often you will be successful and you will have few surprises. A
good battle plan is truly the only way to long term success in the
options game.
If you don’t know where you’re going, you’ll end up
some place else.”
—Yogi Berra
The 5 P’s are Proper Planning Prevents Poor Performance,
or plan before you play. Good management is an important part
of option trading. Most investors enter the option game totally
unorganized. They have unrealistic expectations and don’t understand
the risk-reward picture of the strategies they enter.
To be successful, you need a well defined game plan of each
position you enter, written down in black and white (See Secrets
#29 and #66), and an overall game plan or strategic plan. This
plan, for example, would map out how many positions and what
kind of trades you will enter each month and each year. If you are
an option buyer, this is critical, for such a plan will force you to
stay the course and not quit and stop buying options when you
should be buying.
Such planning should lay out the maximum risks of the
trade as well as the profit potential. In planning your trades,
make sure each trade or strategy gives you a mathematical or statistical
advantage or some kind of edge. Set some overall profit
objectives, but make sure they are realistic.
If you do the proper options analysis, you will know how
often you will be successful and you will have few surprises. A
good battle plan is truly the only way to long term success in the
options game.