Staying Protected While Trading Options
Often it is the case that many traders are adept at handling a winning position, if for no other reason than a person’s demeanor is content and productive. The opposite scenario however will find vastly different outcomes; most people do not react well to adversity and managing a losing position will be as challenging a task as any.
The first hurdle to cross is the subjective emotion that will only serve to cloud judgment. It is at this point that a person will either succeed in handling the contingency, or allow the loss to increase through a lack luster and emotional performance. If emotion is contained, it will be easy for the trader to understand that the most important issue is not actually to avoid losing money; the objective that governs every trading day is to continue an existence as a trader. If one cannot trade, there is no use in discussion of the matter. If one is merely a trader that has had a run of loss, these things can be addressed and most likely reversed.
Survival is the key to ultimate success. With this illuminating realization in place, a losing position becomes merely a thankless task to complete. Certainly, a loss needs to be taken all at once, but when trading options it is important to remain insightful into the features of option trading that could be enlisted to the trader’s advantage. A case in point; if volatility is under enormous pressure and a trader is tempted to accede to the institutional selling that has overwhelmed his already long position, regard may be had to the possibility of continuing to trade the position, but merely to sell more than is bought. For example, rather than refusing even better value if volatility moves lower still, reduce the amount that is usually accepted at the bid, and increase that which is accepted on the offer. In that manner, any value will be diverted with prejudice to any selling that the trader engages in. Due to the increase in selling volume, this will have the net effect of reducing the position, but in a manner that still achieves theoretical value.
This type of strategy will largely depend on the width of the spread that endures within a particular option market, but it is also true that when large moves are occurring whether in underlying instruments or even in option markets through volatility movements, that value is all the more rampant as the market struggles to bring anomalies into line with the benchmark. It is at these very points in time that a trader will benefit from concerted planning for such a contingency. While experience cannot be gained overnight, the realization that all is not lost, that alternatives exist, that the ability to survive is key, and that fear is an illusion will assist any trader in their time of need.
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