Tuesday, March 28, 2006

Get Out Tomorrow

An Option Strategy Example 4: QQQQ

If you feel the ambiguity of the market, it means you should get out from the market and wait for the clear direction. A good trader should never wish a good thing happen. This is a discipline to protect you from investment loose.

As we can see from the picture, any undesired market move would lead to a big lost. For option trader, you have no room to make mistake because you don’t have time. Even the market might be backed as you wished; you may still be the looser because you ran out of time.

The market still has a chance to up tomorrow. During the up, you should cash all the 6 contracts of QQQDP before the market closing. In case there is no up, you should get out also.

Our strategy is:

If the market up after tomorrow, we cashed the 6 and have the 2 of QQQEP to pursue a big gain; if the market down after tomorrow, we can hold the 2 of QQQEP and wait for another back, meanwhile because we cashed the 6 of QQQDP, we don’t need to worry it at all.

The most important for an option trader is to avoid any potential lost! You can afford to miss a chance, but you cannot afford a single lost. Because any lost will be painful and difficult to recover.

Good luck!


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