Money management when trading options

[denl]

Hi WayneL,
Thank you for all your great posts. Would you please write something about how to manage different option trades eg. Calls, Puts, Covered Calls etc. What method do you use to exit trades? Do you have the same exit strategies for options 1,2, 3, 4 etc months to expiry? Or do you exit as soon as it goes against you?
Thanks
Denis

 

[wayneL]

Re: Money Management

Hi WayneL,
Thank you for all your great posts. Would you please write something about how to manage different option trades eg. Calls, Puts, Covered Calls etc. What method do you use to exit trades? Do you have the same exit strategies for options 1,2, 3, 4 etc months to expiry? Or do you exit as soon as it goes against you?
Thanks
Denis

Denis,

It really depends on which greeks I'm trying to trade, both in the selection of strategy/expiry/strike and the exit.

If I'm trading a straight out call or put, I'm mainly trading delta, so I will enter/exit exactly as if I was swing trading a stock or cfd. (but the option better have relatively low IV, cause I'm also long gamma and vega, otherwise just trade the cfd)

I don't trade covered calls

If I'm trading spreads, again it comes back to the greeks and which greek(s) I'm trying to trade.

However I will always have a money management strategy in place based on the fixed fractional method. i.e. the amount of money I lose in any one trade should not exceed a fixed fraction of my capital. (there is plenty written elsewhere on the topic)

Sorry I don't have a quck and dirty rule here, but there are so many strategies and the entry/exit is different for each. You would have to be more specific on strategy.

 

[denl]

Re: Money Management

Hi Wayne,
Thanks for your reply.. can you share whats involved with delta trading and long gamma and vega I am confused and also have you any suggestions what Australian stock prices work best with swing trading? A talk I listened to on US swing trading suggests that US stocks trading between $15 and $65 are the best for swing trading.
Thanks Wayne