Explore Your Options by Tom Gentile
I bought five Xyz October 160Ė170 call spreads for $1.79. Hereís my trading plan:
Buy Xyz October 160Ė170 calls spread for $1.79
Max loss: $1.79
Max risk: $1.79
Max reward: $8.29
Ratio: 4.6 to 1
Stop-loss: If Xyz stock closes below $131
Profit stop: Exit three contracts @ tech stop $155 ($3.46 net credit exit) and let the other two contracts run.
Time stop: 30 days to expiration
Xyz as of todayís close: $152
Current value of spread: $3.00
What else should I build into my trading plans? This is when it gets difficult for me: When Iím winning I want to do too much (make a trade adjustment, watch the market live) because Iím excited. When Iím losing, I donít even want to open my trading account and look at the balance.
First, let me say youíre doing the right thing by developing a detailed trading plan for your trade and at the same time examining the what-if scenarios. Next, letís break your questions down into two parts: 1) the actual trade and 2) the psychology of trading options and spreads.