101Option Trading Secrets Section 6 doc

Section 6 Spreading [...]... matter what the market does On paper this strategy looks great, but in practice it rarely works well The problem you face is too many trades I can’t overemphasize how important it is to minimize your trading, or the alligator will get you Whenever you are planning a strategy, keep it simple Secret 71 AVOID REPAIR STRATEGIES When a trade goes bad, many experienced option traders use repair strategies... where repair strategies buy you some time for the position to move in your favor, but in many cases the trader just does not want to take a loss, and all the repair strategy does is increase his or her trading activity—a game that you want to avoid One of the greatest errors made by an option trader is his inability to take a loss This means that when your option trade goes astray, cut your losses! Don’t... close-to-the-money option 2 Sell a further out-of-the-money option more than one strike price out 3 The maximum profit must be at least 300% 4 Do not sell an option for less than $100 5 Always use a spread order 6 Try to design a spread with a probability of profit of 35% or better 7 Never pay a commission of more than $20 round trip per side Spreading seems complex but can be simple if you keep it simple 210 . Section 6 Spreading