Managing Your Option Trades

11/21/2013 6:00 am EST

Focus: OPTIONS

Dan Keegan

Founder, Optionthinker.com

Dan Keegan discusses what you can do to manage your option trade once it has been established.

SPEAKER:  My guest today is Dan Keegan.  We’re talking about adjusting your options positions while you’re in a trade and what it takes to manage your trade well.  So, Dan, give us some advice, just generally, about watching your positions and managing them while you’re in a trade.

DAN KEEGAN:  Okay, I think the biggest mistake new traders make is when they establish a position, they just cross their fingers and hope it works out at expiration, when probably over 90% of your profitability comes from adjusting your position.  For instance, a stock usually doesn’t go one straight line.  It’s jagged movement.  So as it’s moving in a certain direction, you can adjust your position that way, so if you happen to be long options, as it moves up, maybe you can do like, sell a call, buy a put, or sell stock against your existing position, because you’ve get more positive doubts as it goes down, and if it went down you could sell a put, buy a call, or buy stock.  If you’re short options, you’re going to do the exact opposite of everything I said.

SPEAKER:  How often should I be looking at my positions – is it daily, hourly, depending on how much time I had to monitor them.

DAN KEEGAN:  Well it also depends on how much time…but at least daily.  So, in other words, after the close of the day you take a look at your position, you map out a plan for the next day, and like all plans it changes immediately as soon as it starts, but if you have a certain game plan, then you can know how to deviate from wisely.

SPEAKER:  In terms of adjusting positions, are we also talking about taking money off the table if I’m profitable and removing some of the position?

DAN KEEGAN:  Ah, exactly, but you don’t necessarily have to remove some of the position.  For instance, if you had a vertical call spread and it shot up to a certain point, rather than taking it off you might……it has a maximum profit of five, rather than taking it off at 3-1/2, maybe you could buy a put that would seal in at least half that amount of money and give room for more profit on the upside.

SPEAKER:  So in terms of sophistication of a trader being able to do this, where should I go or what do I need to do to learn how to do some of these strategies other than just buying calls and puts outright?

DAN KEEGAN:  I think it doesn’t hurt to read anything, but I think the wisest thing to do is find a good mentorship program to do that. 

SPEAKER:  What kind of things should I be looking for in a mentorship program?

DAN KEEGAN:  You want to see how experienced the mentor is.  What experience have they had?  Have they spent a good chunk of their life actually being traders themselves?

SPEAKER:  We should probably do the disclaimer that you do the mentoring too right?

DAN KEEGAN:  I do mentoring as well as trading, yes.

SPEAKER:  So you’d probably be a good person to ask about traders—we have a tendency to get into our positions and just micromanage them.  What’s the balance there between that and actually talking about adjusting positions as needed?

DAN KEEGAN:  That’s a good point and it’s something that even people who have been trading for 30 years haven’t refined that to a perfection, so it’s kind of, you roll points that get you overtrading and points, you’re not trading enough.  It’s kind of once you know what you’re doing, you kind of find your own sweet spots.

DAN KEEGAN:  Got to find that balance.

SPEAKER:  Exactly.

DAN KEEGAN:  Dan, thanks for your time.

SPEAKER:  Thank you.

SPEAKER:  You’re watching the Moneyshow.com.video network.

Related Articles on OPTIONS