When to Sell Your Options: Don’t Get Greedy

Jack Carter | September 3, 2024

Hey traders,

A few weeks ago I gave you 3 rules for knowing when to sell a stock you’ve bought. That’s solid info and you should bookmark it so you can refer to it as needed.

Today I want to dive into something just as important — knowing when to sell your options.

I know there’s a lot of focus on which stock to buy, but knowing when to sell, especially when it comes to options, can make all the difference in your trading success.

Now, if you’ve been following me for a while, you know I usually prefer to sell options.

The odds are just stacked on your side when you’re selling rather than buying options.

But yes, I do occasionally buy options too — even though I know the odds are stacked against us.

You see, 95% of all option buyers lose 100% of their money, even when they’re right about the stock’s move! Crazy, right?

So why do I still buy them? Simple — when you’re right, you get a big bang for your buck.

But here’s the catch: You have to know when to sell, and that’s where most traders mess up.

So I’ve put together these simple rules to help you know when you should sell an option you bought.

Rule #1: Take Profits Early

As soon as you buy an option, start thinking about when you’ll sell it.

If that option goes up 20% or 25% in the first week, sell it. That’s a solid move, and you should lock in that profit.

Don’t get greedy.

Rule #2: Sell in Increments

One of the best option traders I ever met liked to buy options in groups of three.

He’d sell the first contract when it was up 15-20%, the second when it was up 50%, and hold onto the third for that potential home run.

But even if you’re trading just one contract, be on the lookout for taking profits quickly — and in stages, like my friend.

Rule #3: Avoid Stop-Loss Orders

Never use a stop-loss order on an option trade. The spread between the bid and ask can be as big as your stop-loss percentage, and you don’t want to get picked off by market makers.

Instead, set a limit order to sell the option at a higher price than what you paid for it and keep an eye on the underlying stock.

Rule #4: Time Decay Is Your Enemy

Time decay really starts to eat away at an option’s value in the last week before expiration.

So, if you’re buying options, sell them before that final week or buy options with a longer expiration date to give yourself more time.

Summing It All Up

They key thing with buying options is to remember not to get greedy.

Take those profits when you can.

Remember: No one even went broke taking profit.

Trade well,

Jack Carter
P.S. Imagine targeting an extra $500 every week, regardless of who takes the White House. It’s possible, and I just recorded this video to show you how I’m doing it.

Trending Stocks of the Week — September 3, 2024

Jack Carter | September 3, 2024

Quick note before we get started:
Imagine targeting an extra $500 every week, regardless of who takes the White House. It’s possible, and I’m showing you how right now. I just recorded this video to show you how I’m doing it.

Now for our top trending stocks of the week:

To help you discover the power of trends, every week, every week, I share with you a handful of the top trending stocks.

These stocks are picked by the custom-built TrendPoint software I designed to pick the strongest trending stocks in the market right now.

If you know anything about me, you know that every trade I get into starts with a trending stock.

Unless a stock is in a strong trend, I don’t want to hear about it. In my book, wishy washy stocks are the quickest way to losing money.

This Week’s Stocks

We’re into September, which is historically a tough trading month. Plus this year we have the election and markets still haven’t really recovered from the chaos in early August.

Tech, via the QQQ, which was leading the way most of this year, has retreated substantially. Meanwhile the SPY and DIA seem to have hit a ceiling against previous highs.

But you know what’s NOT having problems? Specific trending stocks.

Stocks like my 3 bullish picks for this week

  • AFL
  • ABBV
  • CB

And don’t forget about last week’s picks, which you can find here.

This week’s stocks show a strong trend and could still be in play for the next few weeks.

What can you do with these stocks?

Well, there are a couple of things you could consider — after doing your own research, of course:

  1. You could just buy the stock. This is probably the simplest thing you could do. Then just wait for it to go up and sell when you hit a profit target you’re comfortable with. This is only for stocks we’re long on. For stocks we’re short on, you can short them.
  2. You could buy an option. You know I’m not a fan of speculative plays, but every once in a while it doesn’t hurt to throw a little cash at a speculative option. Of course, while options can move bigtime if the stock goes up… the downside of options is that you have a time limit on how quickly you need the stock to make that move. So think about your risk tolerance and consider buying calls or puts depending on the stock recommendations above.
  3. You could do an income play. If you’ve been following me for any length of time, you know that I’m a big fan of income plays, because they increase your odds of winning. We do this by SELLING options instead of buying them. If you haven’t tried your hand at income trading yet, I urge you to try this exercise for yourself.

    Without risking any money, it will really let you see the power of income trading and why it’s my favorite method.

    Whether you end up doing naked puts, covered calls or some kind of spread (like this bull put spread example), income plays like these are really my preferred method to use when I’ve found a great trending stock like the ones on this week’s list.

    Because even if the trend comes to an end, you don’t have to be exactly right. With a direction play like buying a call, you have to be exactly right. But an income play gives you a lot more “leeway”, where the stock can move against you and you still have room to breathe and win the trade.

That’s it for now.

Stay tuned, because I’ll be sending you a new list of TrendPoint Best Trending Stocks every week! (usually Mondays)

Trade well,

Jack Carter