ADJUSTMENT OF AN OPTION POSITION

Adjusting an option position really is an essential skill for any investor – I would even say it is a mandatory requirement. Properly managing risk by adjusting can help you repair strategies that have gone wrong, limit huge losses or even create additional potential gains As a disclaimer it’s important that you know both HOW to adjust an option trade and that you are aware of the additional broker commissions you will be charged to exit/enter additional contracts. Take your time when adjusting so that you don’t adjust and create an even bigger hole from which to dig out of.

1. What’s the goal?

 Make sure that you are either reducing risk somehow someway or  creating a new strategy that could make you more money.

2. Are you really reducing risk?

Forget for a minute that you are not going to make money if you get into a bad trade.

3. Should you just close out the trade?

This is always one of my 1st considerations. If you’ve made a small profit and things are starting to go south it might be a wise decision to just close out the trade and re-evaluate the market. Don’t let your ego get in the way of making money.

4. How have the market trend  changed?

I’m sure when you entered the trade you had a firm opinion on the market if the trend is changing then is your options strategy structured to profit from the new market Wait to see a medium term change to adjust and remember that 1 day doesn’t make a trend.

Trading Strategy: Buying Call Options to Hedge a Short Sale

One of the riskiest investment strategies in the financial world involves selling stock short. This involves borrowing stock from your broker and selling it. If the stock's market price drops, you can buy it back at the lower price, pay back your broker and pocket the difference. Problems arise if the stock price doesn't co-operate and instead skyrockets. You can hedge your position by buying protective call options.

Call Options

A call option gives the option holder the right, but not the obligation, to purchase the underlying security at a fixed price, called the strike price, for a set period. If the option isn't exercised before it reaches its expiration date, it becomes worthless and ceases to exist. Call options are traded on major investment exchanges in much the same way that stocks are traded. While owning a call option doesn't give you ownership of the underlying stock, it does give you control over that stock for as long as the option is in force.

OPTION TRADING STRATEGIES : HOW TO USE THEM FOR MAKING PROFIT IN ANY MARKET SITUATION

 How to Use Option Trading Strategies in any Market Situation

Option strategies are implemented by combining one or more option positions and possibly an underlying stock position.

In other words, a trading strategy is a calculated way of using options singly or in a combination, in order to make a profit from market movements.

Option strategies can give you a greater profit with less risk compared with the traditional buying and selling of stock.

One vitally important thing to consider when investing is when to get out and how. An effective exit strategy needs to be decided upon in advance, and stuck to without allowing emotions to sway you.

There are many types of option trading strategies that can be applied, depending on your opinion, or ‘prediction,’ of which direction the underlying stock is going to move.

A guideline for picking the right stocks to go with the right options strategies is available by reading “Options Strategies for Different Stock Styles”. The various stock movements are taken into account – bullish and bearish – as well as major moves, or slower, moderate moves, in either direction - and a strategy that can be applied to each of these movements.