What strategy do you use to cut loss when the long option trade is not going your way? Do you use time stop or percentage stop? Is there anything wrong holding option (bought 1.5 months ago) that is currently ATM into expiration week if you think you can get a better price to get out? Thanks!
Cutting loss on long option
- Thread starter turkeyneck
- Start date
The only stop I use for long option positions is position sizing. If your max risk is 1% and your account has $100K in it then size the position such that the net debit is $1000 or less.
I usually close out any long out-of-the-money options no later than Wednesday of the week before they expire, whether the trade is winning or not. (Sometimes I'll roll them over to the next expiry.)
When you have weeks like this past one, where stocks are moving 1 to 2% per day, you can wind up leaving money on the table by doing this (as when ISRG moved up by 3% the day after I closed my calls). But I've lost more money holding onto options too long too close to expiration than I've made by "waiting just one more day".
When you have weeks like this past one, where stocks are moving 1 to 2% per day, you can wind up leaving money on the table by doing this (as when ISRG moved up by 3% the day after I closed my calls). But I've lost more money holding onto options too long too close to expiration than I've made by "waiting just one more day".
+1. what happens when you wait to earn more $ b/c now the delta is almost 1 if the option is atm and it's expiry week then the market goes against you and your gain/breakeven turns into a 100% loss.
i use both a price (atr) and time (5 days max) stop. adjust as necessary for volatility and time to expiry.