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.