Our series on Option Buying is now in its 10th month.
Out of 9 months 7 have been profitable and the amount of profit is worthwhile.
With all our best efforts, many of the trades end up losing money. Not something uncommon but to some readers it is worrisome.
Readers have appreciated the method of selection, selection of trades and some of them made good profits also. Many are still not convinced by the process of not caring for the trades which go wrong. They ask the question– Why do we not cut our loss and exit the trade and save some money?
A perfectly valid question.
This is what every book and guru on trading has told them. But the problem is that they have not learnt from the books and gurus correctly. Fault is not with the teacher, it is with the learner.
The teacher says — Have a stop loss before you enter into a trade.
The teacher never says to reduce your stop loss from the original figure unless the trade has become profitable. You do not want to be stopped out with every small move.
I tell the same thing here. If you buy a PUT or CALL for Rs. 10000, this amount is your stop loss. Option Buyer can not lose more than the premium paid. This is our fixed stop loss.
We shall take care of the trades that are going right. We know what the wrong trades can take away from us.
This was a comment from one of the readers recently :