Discussing what happened to Bear Stearns, Lehman, Merrill and AIG, John Forman said something I must share – because it's so important for option traders – and especially those of you who adopt any of the six basic option strategies I teach.
They were in positions which were producing nice income for them, but which continued to lose value steadily. Eventually, they lost too much on the capital side and it all came crashing down.
These are clear examples of poor risk management. Take them to heart. They demonstrate just how bad things can get if you don’t respect what the market can do.
Learn the lesson.
I’ll repeat what I believe: It’s easy to make money when using these option strategies, but the difficult part is keeping those profits. It’s good risk management that allows you to hold onto your gains and thus, succeed over the longer-term.
Do not ignore the possibility that the unexpected can, and does occur.