One of my problems when writing this blog is deciding whether topics that I've discussed, in detail, months ago should be repeated. Most of you have not been with me since the beginning (last June) and may benefit from such repetition. Going forward I plan to use some previously posted material to help fulfill my original purpose for blogging – education for option traders. Especially rookies.
There are different ways to approach option trading. Here are some of my most basic premises:
1) Trade within your comfort zone. Any time you own a position that provides too little reward, or encompasses too much risk, or you don't really understand how to handle – then it's time to modify that position. The simplest course is to close it. But alternative adjustments are possible.
2) Strategy selection is important, but risk management is crucial to your long-term survival as an option trader. Trade using a strategy you understand, but don't assume that profits will just come your way. Take action, when necessary, to prevent large losses.
3) I have four rules to suggest for option traders. It's important to follow these rules in sequence:
One: Don't go broke
Two: Make money
Three: Build Wealth
Four: Never, never forget rule number one
4) Options can be used to reduce the risk when investing in the stock market. They can also be used as gambling tools. Please use options wisely.