I don't have a lot of trading rules. In fact, I'm somewhat morally opposed to them. It seems that every time I hear someone mention a trading rule, I can think of ten reasons to break them. I instead have "generally good ideas".
Generally Good Idea #1
Always trade with limited risk. That means, if you're selling option premium, do it covered. Use credit spreads or time spreads. If you have a short option, you need a long one to cover it.
Generally Good Idea #2
If you're legging into a trade, you need to like the first leg on its own. Reason: You may never get the second leg.
Generally Good Idea #3
Don't max out your margin. Using all your available trading cash is a great way to feel constricted as a trader. When you see a trade you want to put on and you can't because all your cash is tied up, it can lead to rash decisions on liquidations and other irrational trading decisions.
Generally Good Idea #4
Close trades that no longer have much more profit potential left. Got 80% of your max profit out of a debit (or credit) spread? Close it! Why risk dollars to make pennies?
Every now and then, it's nice to have a little reminder on trade management and techniques. I hope this helps.
On Wednesday, September 21 at 6:00 p.m. EDT, TheStreet's Options Profits is hosting a webinar featuring Dan Passarelli of Market Taker. Debit spreads and credit spreads are actually the same thing. Understanding nuances such as the synthetic relationship of both strategies can make all traders better at both execution and position management. Utilizing specific trade examples, Dan will show you how to decide which is better depending on the scenario. The back half of the webinar will include an interactive, exciting Q&A session.
Please email: email@example.com to secure a slot for the webinar as space is limited and for the link to the presentation.