How do I know when to get out?

Discussion in 'Options' started by Bearingthebull, Dec 3, 2010.

  1. Hello everyone,

    This is my first thread and need your help.

    I have been trading options for a about 1 year now with no experience just learning from my mistakes as I go, but I can never figure out when to pull out of a contract. Is there a rule of thumb or formula to use.

    I am currently holding 6 contracts of AT&T Dec 10 $28 call. I bought it at .24 now its .70 at&t is currently at 28.55. Should I sell or hope it will keep rising????

    Thank you for helping
  2. MTE


    That's the million dollar question. There is no rule of thumb or formula.
  3. Carl K

    Carl K

    Follow your trading plan, if you don't have one, write one.
    Time decay will increase extrinsic value loss.
    If you want to reduce your risk, close 2-3 contracts.
    There is nothing wrong, exiting with a profit.

    Enjoy life, it's limited.
    You only get as much as you take.
  4. spindr0


    And you think that anyone here KNOWS what AT&T is going to do in the next few weeks?

    Here's reality. You have a profit and those options expire in 2 weeks. Every day some of the 15 cts of time premium is going to erode, faster and faster each day. Each day the delta is going to increase (somewhere in the vicinity of .75 now). The higher the delta, the more the option gains (or loses) per dollar of move in the underlying. One bad day and most of it may be gone - profit and premium paid. Choices:

    1) Close the position and book your gain.

    2) Sell 2-3 calls to repatriate your cost and gamble with your profit. Scale out with the rest. The more it rises, the more you close.

    3) If you believe there's more upside, roll your Dec 28 calls to Jan 29's. That will pull out your seed money and give you more time to make a profit if correct, with a slower decay rate.

    4) Sign up for SJOptions :D :D :D
  5. Wow I closed my position at .70 and at&t dropped .3o cents

    Thank you Carl K. and spindr0 for advising.
  6. Hold or fold ? that is the hardest question almost every long options holder faces. You might see the value easily double or cut in half tomorrow or next week. With options, the gain or loss magnifies at least 10 times. Either way, probably you are going to regret and if you want to continue playing the options game, that is the one emotion you have to get used to.
  7. Consider an approach where you use a percentage gain per time period. You pick the percentage and the time period. Such as, if I get a 1% gain per day I'll close the position. So 5 days, I want 5% gain to close. Is this the best way? Probably not. But it does tend to smooth out your equity curve. Play with it and see what you think.
  8. I would close and book profits if I was in your shoes.
  9. Good answers. I would just add that no one strategy is going to be optimal in all situations, so you have to accept that. Nothing wrong with taking a profit.

    The one thing you don't want to happen is allow the position to go to a loss. For me, that takes precedence over everything.
  10. before you place the trade, think of the exit boot that kicks you out

    exit b.o.o.t.

    best, what profit you would really like to get
    ok, what profit you would be happy to settle for
    ouch, what loss can you survive
    time, when do you have to get out
    #10     Dec 4, 2010