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.