How To Get Out Of An Options Trade Gone Bad!

Everyone has a losing trade from time to time.  

Is it a bad trade?  

Do I just exit and accept the loss I've got?   

Or is there a way to massage that trade to profitability?  

Obviously, the second choice is a lot more fun. Plus massaging trades to be profitable, makes you feel like a trading warrior.

There are several steps you can take to massage a trade back into profitability.

 I use trade journals where I record all my trades by trading style.

When I open a trade, I always like to know the implied volatility, the accumulation distribution, the current stock, it's trading at the current price, the delta of the strike I choose, and of course, the expiration period.

All these affect the option price and our factors as time moves forward.

Here's a recent illustration of massaging a trade. The price action on GE had been going up very nice on an up-trending diagonal line. They had gotten through their earnings announcements well, and I had high hopes for a put credit diagonal spread.

The price then started going down and slightly sideways in a down pattern. But remember, for put credit diagonal spreads to really work well. The price action has to be going up, the trade was definitely going against me.

So what did I do?

Well, the first thing I didn't do was panic.

I created a mirror trade journal-I call a sandbox journal. And in the sandbox, I work through all of the "what if scenarios" until I find the one that I think is the best, logical solution.

My goal is to never lose money on any one trade. So I try all kinds of ideas.

Here's just one of them.

I stayed in the trade for another five weeks, and each week sold short puts. And at the end, I had a profit of $182.

The "what if scenario" I finally chose was to exit the short positions altogether and just leave the long put in place as the price was going down.

When I saw that the price leveled out, I exited the long position also with $189 profit.

I was in the trade a lot less time with a lot less risk exposure. That's a much better choice.

I have had to do a lot of trade massaging this quarter. Trades looked good for a while and then suddenly they reversed and started going down or the opposite. It has been happening because of the crazy crazy market we've been experiencing.

Massaging a trade to profit is just a taste of what we teach you in Investing Buddies. We want you to be a thinking trader who is able to dig your way out of all kinds of trading holes.

If you're already comfortable trading and you just want to up your skills go right to DATA, our Double Account Trading Adventure. You will trade daily in a live seminar with me where I explain what I'm thinking and why I'm trading certain trades.

www.investingbuddies.com/data

BRAND NEW TO OPTIONS TRADING? I would get my feet wet first with our Options Trading Beginner's Blueprint. The beauty is you get all of the tools you need to be a confident thinking trader and learn how to trade without ever risking your portfolio!

www.investingbuddies.com/options-trading-beginners-blueprint