Dykstra: Don't Ditch a Good Thing

Except for aircraft that run afoul of geese, the Detroit Red Wings and I don't think you always need a way to ditch if things go sour. That's why the Red Wings offered reliable goal-maker Henrik Zetterberg what amounts to a lifetime contract -- adding 12 more years to the six years he's already played with them.

Zetterberg has averaged almost a point a game this season -- 43 in 45 games. That doesn't mean he'll always perform to that level -- but the Red Wings aren't looking for an exit strategy if he doesn't.

Sticking with a good thing through rough patches is part of my deep-in-the-money call options strategy. Some investors leave the exit door open by setting stop-loss orders, which are sell orders that are intended to limit downside risk on specific positions. That leads me to today's question from a subscriber to my Nails on the Numbers newsletter.

Do you have a set time or price level to get out of a bad trade? Do you use stop-loss orders?

I don't work with stop losses. Each trade is different and every market situation is unique. I treat each trade as a separate investment -- meaning I watch each and every stock, I watch the market, and I watch market sectors. If a trade moves against me, that doesn't mean I need to bail at a specific time or value.

I play by the rules, and I do my homework. If something occurs in the market or within the company on which I have bought call options, I will immediately move my money if warranted. But a situation that may trigger a stop loss to execute might be a situation where we need to double up. Not having set stop losses doesn't mean I am open to unnecessary risk. It means that I watch my trades, and look to multiple variables before pulling out of a trade.

Doubling up often increases my win on a specific position. My longest-held contracts tend to be my most lucrative. Archer-Daniels-Midland(ADM Quote) was open 118 days before paying out $7,650 in November. Corning(GLW Quote) rang the register for $5,800 Jan. 6 after staying alive 62 days. Pfizer(PFE Quote) paid me a cool $4,600 in October after 164 days. And Tesoro(TSO Quote) lived 85 days before adding $7,100 to my win column in September.

Conversely, my quick payout positions tend to be at the $1,000 level. Each of these stocks paid me a grand in one day or less: Microsoft(MSFT Quote), Parker Hannifin(PH Quote) in October, United Technologies(UTX Quote), Halliburton(HAL Quote) and Caterpillar(CAT Quote), to name a few.

So, double up and hang on to those positions. But watch out for geese.

Always remember: Life is a journey, enjoy the ride!

Lenny Dykstra manages Nails on the Numbers, a subscription service sold by TheStreet.com. Click here for a free trial to Nails on the Numbers. Mr. Dykstra writes regularly about options trades for TheStreet.com.