Practical Tips

Closing Positions Early Consider closing positions after collecting a significant portion of the premium (50-80%). Holding for the last bit of premium can expose you to unnecessary risk.

Managing Losing Positions

• Close Out: Accept losses and move on if the trade no longer aligns with your strategy.

• Ride It Out: If you believe the trade will recover and you have not overleveraged, consider holding the position.

• Roll: Adjust the position to a new strike price or expiration to improve your outlook.

Avoid Overconfidence Successful trades can lead to overconfidence. Maintain disciplined risk management and avoid increasing trade size based solely on recent success.

Trading Index Options Consider trading SPX options instead of SPY for advantages such as favorable tax treatment, cash settlement, and avoiding early assignment risk.

Limit Orders vs. Market Orders Use limit orders for options with wide bid/ask spreads to avoid poor fills. Market orders are suitable for highly liquid options with narrow spreads.