When to Exit an Options Trade: Don't Gamble Away Your Profits

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When to Hold 'em

If an options trade has made a big move up or down, or if the position is making you uncomfortable, how do you know when you should hold 'em?

You should hold when the components of the story that originally drove you to take the position are still in place.

For example, say you bought a put based on fundamentals, but the position isn't working out just yet. However, the company is weakening, the stock is in a stagnant or downward technical pattern, the market segment it is in is not running up and you are ahead of Wall Street in your view of the company. If the fundamentals are still in place, then you should stick with your position.

This is easier said than done depending on your level of experience and your nerves. But since I've had positions down 80% return gains of more than 100%, I know that, in the long run, this kind of discipline works very well.

Next: When to Fold 'em