Let's remember an important rule of option trading, which was voiced in one of the previous lessons. If time affects our position negatively, means, minimum time should be in position! (time is working against us).
In this case, time works in our favor.. If time works for us, it means that it makes sense to be in a position for a maximum of time!
Market movement can happen, Or maybe not, but time flows in one direction anyway, every day bringing us closer to expiration and bringing us profit from reducing the time value of the option.
What does it mean?
Your task - be short for as long as possible until, till:
1. it is possible to control and neutralize position risks
2. as long as there is reasonable profit potential. It makes sense to buy back options that have already fallen in price., because. almost no profit potential, but the risk is still present. This is a common mistake..
Here I follow a simple rule: as soon as sold option depreciated by 80% from the initial premium, I close this position. Then an option or a closer strike is sold, or a longer term.
Output
Selling options has a higher probability of profit compared to buying, but this method requires more experience and attention to the position. There are also higher requirements for collateral and risk control..
It is imperative to have a set of actions in the event of an unfavorable scenario.. Unfortunately, a common mistake traders make is, that they overestimate their ability to predict the market and do not consider negative options when selling uncovered options.
