Are you interested in learning more about option trade? Are you unsure of how to go about it and avoid major losses? A big part of engaging with option trade is knowing how to avoid a substantial loss. We put together a guide by knowing the right time to quit a trade. Check out our useful guide below!
What Are Option Trades?
Options trading is simply the act of buying and selling call options and put options. While stock trading is often considered risky, you can stay ahead of the game and protect your finances by knowing when to quit a particular option.
Knowing When to Exit an Option Trade
There are several signs that it may be time to quit a trade that you can keep an eye out for, as well as different things you can do to stay on top of your options.
The game has changed
As a rule of thumb, you should quit a trade when the original reason you took the trade position has changed significantly.
For example: Perhaps you bought a put option on a failing company. This company suddenly improves, and the earnings are much higher than previously thought.
In this case, you should cut your losses. If you are gaining traction on losses that will have a bigger impact on your portfolio more than they previously did, it would be wise to fold.
Say you own stocks in a company and have owned them for a long time. Clinging to that stock doesn’t mean much outside of paper. If you have a decent amount of stock, cash it out instead of sitting on it forever. It could mean the difference between financial stability for life and another ten years working on stocks.
Set up standards for yourself
Many pro traders try to stick to a very specific goal – or rather, a very specific level of self-control.
If you get to hit your 100% profit mark, it would be wise to do one of these things:
- Take all the profits
- Roll your position
- Press your position
For example: You’ve invested in a company for a while and have only a few weeks left before the put expires.
Sometimes a competitor begins to improve dramatically. Don’t sit around and wait for your put to expire – take it and run.
Stay informed on the political climate
Regularly checking up on new events and decisions can help you get a clearer view on how the stock market is doing. Major events can influence the market substantially. Staying informed can help you make the right choice in your trade options.
Using the right software and applications
IQ Option is a futuristic platform with an user friendly design and lots of videos explaining. With this trading software, you can view multiple charts at once, watching tutorials about indicators, and access 24/7 trading. How was our guide to option trade exits? Tell us what you think in the comments below.
