The Importance of Managing Sell Put Trades and Exiting Early
A GOOG Example
GOOG Daily Chart
Investing in options can be a rewarding but complex endeavor. One crucial aspect of option trading is knowing when to exit your positions, especially when selling puts. In this post, let’s explore the benefits of managing our sell put trades and why exiting early can make a significant difference in our overall strategy. Let's dive into a real-life example involving $Alphabet(GOOG)$
The Setup
On September 11, I sold a GOOG put option with a strike price of $123.0, expiring on October 27. I collected a premium of $1.18 when initiating the trade, anticipating that the stock price would remain stable or rise.
The Early Opportunity
After just five trading days, the put option's price dropped 39%. At this point, I could have exited my position, realizing a nice profit. However, I held on.[Glance]
The Consequences
By September 26, the GOOG stock price continued to decline, and my put option's value skyrocketed to $2.64. My unrealized loss had reached -123.7%. The situation wasn't looking favorable. [Spurting]
The Exit
Finally today, with 21 days to expiry, I decided to exit the trade, buying back the put option for $0.88. While this resulted in a 25% gain, the journey to profit wasn't particularly time-efficient.
Analyzing the Decision
My experience with the GOOG put trade highlights several crucial points:
1. Exiting early after the initial price drop would have limited potential losses and preserved my capital, allowing me to seek better opportunities.
2. Exiting early frees up my capital, making it available for other investments or trades.
3. By closing my position early, I could have avoided the risk of being assigned and forced to buy GOOG shares at the $123.0 strike price.
4. While I ultimately profited, holding onto a losing position for an extended period tied up my capital and limited my ability to explore other potentially more profitable trades.
5. The rapid decline in GOOG's stock price underscores how market conditions can change quickly, emphasizing the importance of adapting to evolving circumstances.
In conclusion, my GOOG put option trade is a valuable lesson in the importance of managing sell put positions and exiting early when conditions warrant it. While I did ultimately end with a profit, the time and capital tied up along the way could have been utilized more efficiently. Remember, having a well-defined exit strategy and continually assessing our trades can be key to long-term success in options trading. [Victory]
Disclaimer: This post is for educational purposes only, and trading options involves significant risks. Always do thorough research before making any investment decisions. [Observation]
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