Risk Management

No matter what kind of security is purchased and sold and no matter what the expected holding period is, it is still essential for everyone to have an adequate risk management plan. In cases in where a security does not behave the way one expects it to, it is not a good idea to stay in it, get out as soon as you can. Why should a person hang onto it anyways? How is that going to help? Everybody’s threshold is unique therefore it is not possible for us to provide exact and precise advice, but some ideas can be placed at your disposition. Remember that a person is able to and has the right to buy or sell in the market. If you do not feel comfortable in the position you are in, then you should definitely let go of that trade. For those that have taken the deep in the money DITM and in cases in which the stock is not moving along the way one would have liked it to, the call can always be sold. It is not an obligation to hold on until the option expiration. With those alternatives, it will be up to each individual to make a decision about the stopping point. It will be much better to get it sold right away than to wait to sell it later after it has gone down a lot more. There are a few different ways in which one can decide on a stop out point for the trade if it just so happens to do something against the planned. For instance, some people set an amount in dollar figures that consists of the maximum risk they are able to handle and tolerate. An individual is able to support their decision on some levels of support for the particular stock. You can always decide on a time stop, as this will make you get out of the trade when the option gets to a certain place in the cycle of expiration. This is, obviously, up to each individual.