Explore Your Options  |  SEP 2009

Explore Your Options by Tom Gentile

Explore Your Options by Tom Gentile TRADING PLAN I bought five Xyz October 160–170 call spreads for $1.79. Here’s my trading plan: Buy Xyz October 160–170 calls spread for $1.79 Max loss: $1.79 Max risk: $1.79 Max reward: $8.29 Ratio: 4.6 to 1 Stop-loss: If Xyz stock closes below $131 Profit stop: Exit three contracts @ tech stop $155 ($3.46 net credit exit) and let the other two contracts run. Time stop: 30 days to expiration Xyz as of today’s close: $152 Current value of spread: $3.00 What else should I build into my trading plans? This is when it gets difficult for me: When I’m winning I want to do too much (make a trade adjustment, watch the market live) because I’m excited. When I’m losing, I don’t even want to open my trading account and look at the balance. First, let me say you’re doing the right thing by developing a detailed trading plan for your trade and at the same time examining the what-if scenarios. Next, let’s break your questions down into two parts: 1) the actual trade and 2) the psychology of trading options and spreads.

by Tom Gentile