I often talk about stupid options tricks in member chat and I thought it would make for good weekend reading.
Today we'll look at salvaging bad positions, something that comes up once in a while in any virtual portfolio. Not everything has to be buy, hold or sell with options - there is always hedging and there is always an option! Since many of us are short on USO and not happy at the moment, I thought we'd focus on various salvage strategies for positions that go against us but, before we get into that, I did promise we'd discuss scaling, and the two do go hand in hand...
Scaling into a position is always a sensible strategy, we can't be right all the time with our entries so we need to plan ahead for being wrong. Also, we need to plan for our position going against us tomorrow, next week or next month. Ideally, you should never be in any position that risks discomfort if you lose it. If you have a large virtual portfolio, it's good to keep most of your positions under 2%. If you have a medium virtual portfolio, 5% and, if you are in the $50,000 range or less, it will be hard to avoid having positions that are 10% of your virtual portfolio and that's where scaling is even more important so we're going to focus on the small entries and I'll assume the big boys can multiply by 2-10 by themselves.
$50,000 is not a small amount of money and we can assume that, if that is your stock virtual portfolio, that you worked hard to make it and you would rather not lose it. This is all the more reason to take a more conservative stance with your positions. As I said, you don't want any position to be more than 10%, or $5,000.
