Take Your Profit While You Can

Overcome Online Option Trading Greed

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You know, there are 2 emotions which you would need to control in your online option trading journey - Fear and Greed. What I want to share here is - GREED.

You might have experienced this before. You've done your homework and bought a share option contract and the underlying stock moved in your anticipated direction based on certain news alert or from an anticipated event. You were elated when you saw your paper profit as the option premium gain value from the favorable movement in the underlying stock and you promptly close to trade to cash in the profits.

After you sold off your option position for a profit, you told yourself there's no harm in checking out the current development of the underlying stock. But your smile immediately turned into frustration as you saw the stock price sky rocket in your anticipated direction shortly AFTER you've closed your option position. You couldn't believe what you've seen and started cursing yourself for selling off too soon and keep staring at the fast accumulating option profits which you could have "potentially earned".

And guess what? Greed crept into you and started to distort your thinking. Blaming yourself for being a moron for cashing out too quickly, you impulsively buy back the same option (where the option premium would be expensive after gaining implied volatility from the erratic price movement of the underlying stock in such a short time). Remember, never make the mistake of buying an option without first confirming the price & volume data from the stock chart and the Level2 Code. The purpose is to ensure that the stock is still trending strongly in your anticipated direction before you buy the option!!

Without first checking the price, volume and Level2 Code data carefully, you might be caught off-guarded and didn't realize that the underlying stock had started its trend reversal. So, instead of reaping further profit from the re-purchase, the stock began sliding fast in the opposite direction, shredding your option premium fast along the way. "UUUHHHH !! Oh NO !!" You screamed as you watched the stock price movement in disbelief!! Now your earlier profits were totally erased from this stupid trade that you should NEVER have entered.

The worst thing is, you committed another trading sin by STUBBORNLY refusing to cut loss when the situation turned "bad" because you just couldn't swallow the pride of losing that nice little gain that you've made earlier. You keep telling yourself that "I HAVE TO WIN IT BACK!!!" and you hope & pray that the situation would turn around .. . But alas, the stock kept going in the opposite direction and you FINALLY woke up and sell the option at a much greater loss.

The above scenario had happened to me several times and it was a hard lesson for me. The lesson learned was : Once I've sold an option position for whatever amount of profit, I should be contended with it - No "IF", No "BUT". To avoid blaming yourself for selling too early if the stock kept trending according to your anticipated direction, I would recommend that you learn how to set a trailing stop to your option position once it is in profit. Now you could keep riding on the profit as long as the stock price trend favorably.

Once trend reversal sarted, your trailing stop would automatically be triggered and you would at least exit with a higher profit compared to closing your position too soon. And remember, never re-enter any option position without first confirming the stock price movement from the price, volume and the Level2 Code data. The great thing is that the "Live Freely Options Trading Seminar" teaches options traders how to study the price, volume and Level2 Code data to determine the direction & strength of the trend.

Dear fellow options traders, as long as the market still exists, be assured that you have plenty of opportunities to earn money from the options market in the future. Just make sure to stick to the techniques which have brought you profits more frequently and at the same time practise good money management and discipline in your online option trading journey. Last but not least, don't give up so easily whenever you hit obstacles. Just remember, professional traders also have trading loses once in a while. What's important is the lesson that you've learned from your mistake and make sure you don't commit these mistakes again.

Yours sincerely

Tony Chai

About Me

Tony Chai has been trading stock options, particularly US stock options, since he graduated from Live Freely Options Trading Seminar in year 2004. His stock options trading technique involves mainly trading options based on earnings gapping analysis. In his stock options trading web-site, you'll find a number of informative articles written by himself and seasoned options traders to sharpen your stock options trading skills. Tony also record his stock options trades and his analysis for initiating those options trades in his stock options trading blog.

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