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Strategies & Market Trends : Selling Puts: Have Cash Will Travel
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To: TheHahnz who wrote (764)12/23/1999 10:38:00 AM
From: David Lind  Read Replies (2) of 1235
 
Ken, Tom and Hanz, thanks for your excellent responses to my question about stop losses. There are three quite different but very logical approaches.

What seems most useful for my situation is a combination of Tom and Ken's comments, because I am not operating in Hanz's longer time frame. Provided one selects the right stock at the outset, it seems to make sense to give a well selected OTM trade the benefit of the doubt until it starts to cross into ITM. At that point - since I also believe in sticking to the rules - it is time to close the position to avoid further pain and possibly greater losses. But I also like Tom's comment about rolling it out if one still has faith in the fundamentals of the stock. So with this strategy, one can feel more comfortable about giving up one trade at a loss, but leaving open the option of rolling into another on the same stock if one still believes in it. Or, if the market or fundamentals have indeed changed on that stock, just move on to something better.

Thanks for your comments. Very helpful.

Now another question for all of you. Have you used broker stops with any success? It is something I do regularly with stocks. I find physical stops particularly useful not so much in initially covering the downside, but in protecting profits already in hand after a rise in price. But I haven't tried it yet with options.

I wonder if the large spreads with options can cause problems with this approach?
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