Getting Started With Options Strategies - Part Two
....Continued From Part One
Once you've decided on an appropriate options strategy, it's importantto stay focused. That might seem obvious, but the fast pace of theoptions market and the complicated nature of certain transactions makeit difficult for some inexperienced investors to stick to their plan.
If it seems that the market or underlying security isn't moving in thedirection that you predicted, then it's possible that you'll minimize your lossesby exiting early. But it's also possible that you'll miss out on afuture beneficial change in direction.
That's why many expertsrecommend that you designate an exit strategy or cut-off point ahead oftime, and hold firm. For example, if you plan to sell a covered call,you might decide that if the option moves 20% in-the-money beforeexpiration, the loss you'd face if the option were exercised andassigned to you is unacceptable.
However, if it moves only 10% in-the-money,you'd be confident that there remains enough chance of it movingout-of-the-money to make it worth the potential loss."
About The Options Industry Council
The Options Industry Council (OIC) was created in 1992 to educate investors and their financial advisors about the benefits and risks of exchange-traded equity options. Today, its sponsors include the American Stock Exchange, the Boston Options Exchange, the Chicago Board Options Exchange, the International Securities Exchange, NYSE Arca, the Philadelphia Stock Exchange and The Options Clearing Corporation. Our experienced options seminar instructors provide valuable insight on the challenges and successes that individual investors encounter when trading options. In addition, options industry professionals have created the content in our software, brochures and Web site. Appropriate compliance and legal staff ensure that all OIC-produced information includes a balance of the benefits and risks of options.
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