Tackle Today: Long Put Risk Management
March 10, 2022
«You got options.»
Traders,
We gave long calls their due; now it’s time for long puts. We’re going to use the same situation to see the risk management parallels.
You find a bearish pattern and want to swing for the fence. And the stock is cheap enough, so long puts are a viable option. You buy a 2+ month ITM put option for $3. Now what?
Your trade plan should consist of two possible outcomes. What do you do if you’re right? And what do you do if you’re wrong? It’s the latter query that’s in focus today. There are three standard rules.
① First, if you’re willing to risk the entire cost of the put option, you don’t need a stop loss. This is the beauty of long puts. There’s no risk of getting whipped out if you don’t place a stop loss. And, look at the market when it’s in a downtrend! The volatility is insane. Not having to use a stop is comforting.
② Second, if you’re unwilling to risk the entire put cost, put a stop loss above a major resistance zone. Why remain in the put if the stock breaks resistance and you’re no longer bearish?
③ Third, you could focus on the option cost instead of the stock price. Some traders might exit a losing put if it falls in value by 30% to 50%.
Each technique has its tradeoffs. Try them all, and your experience and personality will dictate which you favor.
Tomorrow we’ll address how to manage a winning long put.
🛑 Upcoming Options 101 Webinar: How to Swing Trade Long Calls and Long Puts with Coach Tyler Craig | March 14th, 2022 at 8:30 PM EST on YouTube
This next YouTube training will be focused on swing trading calls and puts using the S.T.E.P Swing Trading System. In our last webinar, we introduced the topic from a high level. This time, we’re building trade examples and focusing on how to enter and manage long call and long put trades.
In this webinar you will learn:
✅ What is Swing Trading
✅ The Long Call Strategy
✅ The Long Put Strategy
✅ Reward to Risk Expectations
✅ The Best Chart Patterns for Long Calls & Long Puts
✅ Case Studies
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The importance of good risk management cannot be overstated. There are old traders and there are bold traders, but there are no old bold traders, this popular idiom cleverly informs us that those who over position size and fail to use stop losses will not be traders for long.
Chart of the Day: Amazon Jumps on Stock Split Announcement
Amazon announced a 20-for-1 stock split last night, and its share price is up over 5% today, even as the broader market is sinking. Traders are rejoicing. AMZN stock has been far too high for many popular strategies. After the late-May split, price will no longer be an issue.
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