In Chapter 3 of this book titled “The Secret of Option Trading” is MANAGE YOUR RISK.
He gave the simple guidelines:
- Use Stop Loss – I have a bad habit of not putting my stop loss order, I need to improve in that area.
- The 200% rule – use 3 times of premium collected to exit a bad trade, I can stomach heavier losses.
- Adjusting the Position – This is my key focus now; practice, practice and more practice.
- Money Management – I trade small but trade frequent but also need to follow this closely.
MANAGE YOUR RISK (Kerry Given) and MANAGE YOUR WINNER (Tom Sosnoff) both are different in option trading and it is good to understand both side of the camp on where they are coming from. Personally, I think both are right, their reasoning is valid but most importantly is how do I integrate them in my option play.