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Hello all again,
Thank you for your participation, here are the results:
Number of votes: 15
Option1: (Cut your loss) 14 votes
Option2: (Carry position forward) 1 vote
Many noted it is vital to get out and not run on hope, also the
expectancy for using option1 systematically is better than for using
option2 systematically.
Gwenn Ael Gautier
QUESTION A WAS:
You regularly trade options, by shorting puts in stocks you have defined
as being trending up. You trade ten stocks for every quarterly expiry,
and your average trade is about $1200 in profits. You are currently in a
short put options trade in a stock you believe in, however, due to an
unexpected crisis at a competitor, your position has been hurt, you are
losing $3500 at the moment.
You are facing the following alternative, which one do you chose?
Option1: Take immediate loss of $3500, and wait for expiry to move on to
next stock.
Option2: Manage the position, by rolling it to the next expiry (and
forego the possibility to trade another stock that meets criteria),
knowing you have 40% chances to end up losing only $1900 in three months
(ie recoup $1600), and that if it doesn't work out still, you'll be down
$4500, (at which point you might still roll your position to the next
expiry)
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