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.
