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.