Options Wonderland

[leemalone2k3]

Thanks buba,
If you think about it, that is really what option trading is all about. You have the OPTION to turn a losing trade into a winning trade.

I compare it to learning to drive. When you first start you are fine as long as the road is straight, but when you come to a big turn in the road, you dont just stop, get out of the car and wonder what to do because the road is no longer going straight. You turn. The same is true with options. If the trade turns against you, simply turn.

An example yesterday was C. I played the 7.50 and 5 Dec long puts. I took profit on the 7.50 near EOD and held the 5's. Then i sold some 7.50's short at 3:56 to hedge the long 5 puts. Market Forcast suggested a 2 out of 3 chance for a rally today so the probability of a winning trade is already in my favor. If C rallies today, I will cover my short position, reducing the cost of the long position. I'll continue to use this technique of selling the 7.50 short as C retraces and bounces.

If C doesn't rally, I'll simply cover the short position for a small loss and use the 5.00's for profit.

With verticals, it's a good idea to play 30-40 days till expiry but with huge volatility like we've seen, it works with front month close to expiry trades too. You need level 3 trading authority to perform these trades and it is advisable to practice them on paper until you feel comfy executing and analyzing this strategy.

My advice to all option traders:
LEARN TO TURN!!!!!!!!!!!!!