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Strategies & Market Trends : The Covered Calls for Dummies Thread -- Ignore unavailable to you. Want to Upgrade?

To: LindyBill who wrote (2459)	9/22/2001 12:02:09 AM
From: Mathemagician	Read Replies (1) \| Respond to of 5205

OT: I very strongly advise choosing your specific exit points before opening the position, both on the upside and downside, and sticking with them no matter what. Hanging onto a short position as a stock rises is much more dangerous than hanging onto a long position as a stock declines. Also, you should consider very carefully the risk/reward ratio provided by your entry and defined exit points. As a guideline, if your risk/reward ratio is 1:N, you must be right about one time out of N in order to have a positive expected value. It's like baseball. If you're good, your odds of getting on base are only about 1 in 3. However, the hits count more than the outs so that is enough. Now, that doesn't mean that you should arbitrarily set your exit points so that ratio is satisfied. The art of trading to which you referred is finding the situations where that ratio is satisfied. You must avoid at all costs defining the situation to suit your ratio. Easier said than done. M