Secret 46GET OUT OF THE HOT SEAT!

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Whenever I am in an option writing position, I consider myself

to be in the hot seat, and my goal is to get out of the hot seat

as quickly as possible. Consequently, I write out-of-the-money

options that have little time left before they expire and that I will

buy back immediately when they lose most of their value.

You don’t want to be in an option position that is almost

worthless and then surprise volatility comes along and the underlying

stock, index or futures jumps into-the-money, hurting

you big time (i.e. Twin Towers disaster). I also don’t want to be in

the hot seat when I see a major change in the underlying stock,

index, futures or overall market.

Even where my stop-loss has not been hit, if I see a major

change in markets or the underlying security where it is moving

against my position in a scenario I didn’t plan for, I will exit immediately

and get out of the hot seat!

When you are writing naked options or high risk credit

spreads and when most of the premium has been captured or disappeared,

you MUST EXIT your position. As a writer, you are in

the HOT SEAT, and while in the hot seat, you are always in danger.

Surprise volatility can bite you at any time. As a result, it is

imperative that you always check your portfolio to see if you have

option writing positions that have lost most of their value, and if

they have, then act accordingly; as soon as you find an opening,

get out!

The hot seat concept also applies to option buying when you

have a profit. Preserving a big profit puts you in the hot seat.

Don’t let the profit slip away. When the underlying stock or futures

stalls or reverses trend, get out of the the hot seat. Take the

money and run.

Whenever I am in an option writing position, I consider myself

to be in the hot seat, and my goal is to get out of the hot seat

as quickly as possible. Consequently, I write out-of-the-money

options that have little time left before they expire and that I will

buy back immediately when they lose most of their value.

You don’t want to be in an option position that is almost

worthless and then surprise volatility comes along and the underlying

stock, index or futures jumps into-the-money, hurting

you big time (i.e. Twin Towers disaster). I also don’t want to be in

the hot seat when I see a major change in the underlying stock,

index, futures or overall market.

Even where my stop-loss has not been hit, if I see a major

change in markets or the underlying security where it is moving

against my position in a scenario I didn’t plan for, I will exit immediately

and get out of the hot seat!

When you are writing naked options or high risk credit

spreads and when most of the premium has been captured or disappeared,

you MUST EXIT your position. As a writer, you are in

the HOT SEAT, and while in the hot seat, you are always in danger.

Surprise volatility can bite you at any time. As a result, it is

imperative that you always check your portfolio to see if you have

option writing positions that have lost most of their value, and if

they have, then act accordingly; as soon as you find an opening,

get out!

The hot seat concept also applies to option buying when you

have a profit. Preserving a big profit puts you in the hot seat.

Don’t let the profit slip away. When the underlying stock or futures

stalls or reverses trend, get out of the the hot seat. Take the

money and run.