Option Trading Tip #8
My top 10 call and put option trading tips that I have learned, and that you MUST know before you start trading calls and puts.
Trading Options Tip #8:
Learn to cut your losses when trading call options and put options.
The hardest thing for novice option traders to do is to have the courage to cut your losses. Cutting your losses means that when you have a losing trade, sometimes it is best to admit your mistake and sell the position to take a loss. It is called cutting your losses because as you saw in my Option Trading Tip #5-The Trend is Your Friend, if you guessed wrong on a option and you start losing money, it might be best to limit your losses before the stock continues to move against you and you lose all of your money.
A lot of option traders say NEVER allow yourself lose more than 50% on any option position. So if you bought an option at a price of $2.00 and a few days later you see it is down to $1.00, then it might be time to sell it and at least get $1.00 back.
Here are the top 10 option concepts you should understand before making your first real trade: