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

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When to Run

When I enter a trade, my goal is a double (at least). So when I get near or hit the 100% mark in profits on a position, I put on my running shoes and decide to do one of three things: take profits, roll the position or press the position.

One reason to run is when market sentiment turns dramatically against you. For example, if you have a put that has six weeks before expiration and a competitor to the company you have shorted reports great results, the entire segment could explode upward. If you don't see this momentum changing in the time left before your put expires, you run. Don't walk, run.

Rolling a position means closing the existing position, taking your profits off the table and re-investing the original capital in an option on the same stock that has a different strike price and/or expiration. The idea is to gain more leverage and an opportunity for another double.

Pressing means to close the position, and then take your initial investment plus your profits and put it back into the same trade.

Next: Sell Stops