Secret 35DIVERSIFY
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Diversification, important in all investments, is critical
when it comes to option buying. Since many of your positions
will be losers, the more positions you have increases your odds of
hitting a home run. With only a few positions, you could easily
wipe out your portfolio very quickly.
When we talk about diversification, we generally mean you
should own both puts and calls and a variety of each, but there is
another type of diversification that also applies here—DIVERSIFY
OVER TIME!
Don’t buy a lot of option positions at one time. You are betting
on market volatility. If the market goes to sleep (and it can
sometimes for a year or so), you are dead. Your options will melt
away and expire. If all your money is in options at one time, your
portfolio will vanish.
Therefore, you want to enter option positions gradually over
time, patiently waiting for the market or a stock to explode. Once
you see the market waking up, you can increase your option buying
activity.
A good game tactic is to plan to spend a set amount of dollars
each year and gradually to invest that capital over that period,
possibly using seasonal tendencies to maximize your
opportunities and gains.
Time diversity is also important, for you are sure to encounter
losing streaks, and when you do, you will have enough
money in reserve to return and play another day.
Diversification, important in all investments, is critical
when it comes to option buying. Since many of your positions
will be losers, the more positions you have increases your odds of
hitting a home run. With only a few positions, you could easily
wipe out your portfolio very quickly.
When we talk about diversification, we generally mean you
should own both puts and calls and a variety of each, but there is
another type of diversification that also applies here—DIVERSIFY
OVER TIME!
Don’t buy a lot of option positions at one time. You are betting
on market volatility. If the market goes to sleep (and it can
sometimes for a year or so), you are dead. Your options will melt
away and expire. If all your money is in options at one time, your
portfolio will vanish.
Therefore, you want to enter option positions gradually over
time, patiently waiting for the market or a stock to explode. Once
you see the market waking up, you can increase your option buying
activity.
A good game tactic is to plan to spend a set amount of dollars
each year and gradually to invest that capital over that period,
possibly using seasonal tendencies to maximize your
opportunities and gains.
Time diversity is also important, for you are sure to encounter
losing streaks, and when you do, you will have enough
money in reserve to return and play another day.