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Trading Married Puts

As stock traders we are always excited when our trading system or program produces a winning trade. But this poses a dilemma. Do you hold a winning stock trade for further upside profit potential or do you take profits in case the stock declines in price with the possibility of a profitable trade turning into a loss?

It’s human nature to want to take profits quickly when we have a profit in a trade. We have closed out winning trades only to see the underlying stock continue to rally knowing that we left profits on the table. Many times, the stock you own will have a sustained rally producing substantial profits for your stock trade way beyond your expectations.

We normally will exit a stock trade when we incur a 7 to 10% loss before it develops into a large loss. And when we have a 15 to 20% profit in a stock we normally purchase a put option to protect those profits. This allows us to follow our second trade management rule of not exiting winning trades with a small gain. Purchasing a put option does not limit the upside profit potential of our stock trade if the stock continues to rally.

In this video we will look at actual trade examples with guaranteed profits for our stock trades using our third trade management rule.

Successful Option Portfolio Management

In this video we will look at a simple technique for identifying options with the best profit potential. Once you enter an option trade we can utilize a simple money management rule for exiting losing trades. This rule allows you to hold on to winning trades and cut short your losing trades which is the key to successful option portfolio management.

Copies of brokerage account Profit/Loss Reports show that Chuck currently has $1.756 Million in open trade option profits and an average return of 223.5% using trade selection and money management techniques.

 

Letting your Winners Run

This week we will explore an important money management rule of letting your winners run. In a previous video we explored money management rules of closing out losing trades before they develop into large losing trades.

Cutting losses short and not limiting your profits has allowed us to maintain a better than 3 to 1 profit to loss ratio with option trading. In order to achieve at least a 3 to 1 profit to loss ratio you must practice sound money management by closing out your losing trades before they develop into large losses and by not limiting your profits by selling winning trades with a small profit.

Letting your winners run defies human nature as most traders want to do just the opposite and take a quick 10% profit as soon as possible. People like the euphoria associated with winning and will take a small profit even though they are giving up a potentially greater profit later by holding on to winning trades.

Most traders tend to trade with limited upside and unlimited downside. They will sell an option when they have a small profit but continue to hold losing options eventually winding up with a portfolio of losers.

In this video we will explore a simple option trading strategy that allows us to lock in profits for a profitable option trade and at the same time does not limit the upside profit potential for the trade.

Copies of our brokerage account Profit/Loss Reports show that we currently have $1.209 Million in open trade option profits with an average return of 177.5% using our trade selection process and money management rules.

A Simple Money Management Rule

The overall goal of Chuck’s Trading Strategies are to maintain at least a 3 to 1 profit to loss ratio. This ratio is calculated by dividing your total profits by your total losses and is a good overall measure of reward versus risk.

n order to achieve at least a 3 to 1 profit to loss ratio you must practice sound money management by closing out your losing trades before they develop into large losses and by not limiting your profits by selling winning trades with a small profit.

Most traders do just the opposite and take a quick profit as soon as possible and hang on to losing trades. This results in a portfolio with limited upside profit potential and unlimited downside profit potential.

Once we have our option position established, we will exit trades before they develop into big losses. Cutting losses short is essential to your trading success as it is very difficult to recover from a large loss.

If you take a 75% loss on a trade, your next trade requires a gain of 300% for you to just break even!

In this video let’s explore a simple money management rule for exiting losing trades.

 

Money Management in Trading

The overall goal of Chuck’s money management guidelines is to maintain a 3 to 1 or higher Profit-to-Loss Ratio and to produce consistent monthly returns. Money management is just as important to your investing success as stock or option selection and is necessary in controlling risk.

Overall Goal of Trading Money Management Guidelines:

  • Maintain a 3 to 1 or higher Profit-to-Loss Ratio
  • Produce consistent monthly returns

In this video we will learn how money management enabled Chuck Hughes to produce consistent monthly profits for ​his advisory service over the past 24 months with an average monthly return of 39.4%.