Explore Your Options  |  DEC 2004

Explore Your Options by Tom Gentile

Stocks & Commodities V. 22:12 (74): Explore Your Options by Tom Gentile Got a question about options? Tom Gentile is the chief options strategist at Optionetics (www.optionetics.com), an education and publishing firm dedicated to teaching investors how to minimize their risk while maximizing profits using options. To submit a question, post it to our website at http://Message-Boards.Traders.com. Answers will be posted there, and selected questions will appear in a future issue of S&C. EXIT STRATEGY EXAMPLE Would you explain the process of exit strategies? Thanks — Elom The appropriate exit strategy will depend on your outlook for whatever you are trading. In most cases, it’s best to have a stop-loss that will trigger your exit from the trade if it begins to move in the wrong direction. The stop-loss might be based on a technical level, a dollar amount, or a percentage. For example, you might set a stop around an important technical support area in the market. Or, you might stop out of the trade if it moves 5% in the wrong direction. We also recommend setting an exit strategy based on a profit objective. For example, if you set up a straddle or a bullish spread using options, you might exit part or all of the trade when you have achieved a 25% or 50% profit. Most important, when you develop an exit strategy, whatever it is, stick to it. This sometimes means cutting a loss even if it’s painful in the short term.

by Tom Gentile