Rule NO 1. Back yourself up always in every single trade

1. Simple rules

a) For stocks use stop loss or hedge with options, prefer to use stop loss or buy out of money options both are good.

b) for  Options use a straddle at least during the initial big position during consolidation phase of 6 days. Of course invest money when there is a trend. But trends can also be uncertain. Future is always uncertain even in best trends. So back yourself up always.

Implied volatility has a big or singular role in options. Only buy options during consolidation phase of trend when the volatility is low and option price is low.

stop loss does not work in options because by the time you open the computer next day the option is down 50 percent if the underlying is down 10 dollar for example.

So stop loss is stupid in options only way to do it is to hedge it with opposite option at same strike price.

lost trading weekly options

lessons to learn

1. After 2 days of rally the AAPL share closed at 665. In the morning it opened at 674. There was tremendous volatility in the options and the weekly option ITM I bought was 665 for 11 dollars. The main problem was I did not put a stop loss immediately. This is a horrible mistake when it comes to options especially.

There was selling and profit booking and the stock came down within 2 hrs to around 660 then came down to a low of 650 and closed at 656.

This was my first option trade after a long time and I was not cautious. Options can burn you if you do not have a stop loss especially when it is so volatile after 2 days of rally.

It is advisable not to buy any weekly after 2 days of rally because it is already highly priced because of high volatility. Then the options expire in 2 more days. Now I have to take loss because the options closed at  4 dollars. I got a loss of  700 per contract. Any way I had only 2 contracts and I put a sell limit on it at 6 dollars on it. hopefully the stock move up tomorrow and I can get some of the losses back.

weeklys are good when the rally starts but can be overpriced after 2 or 3 days of rally. I think it is not worth buying it at that time.

A good idea would be to sell weekly far out of money and make a lot of money. that is the easiest thing to do for extra cash.

There should always be atleast a 25 percent stop loss on options or a 500 dollar limit. To lose more than that is not worth it. These are very important for money management.

I also bought a next month option at the same strike price but it declined only 15 percent. This is because weeklys are very volatile and decay fast with time.

graph for 3 days
http://screencast.com/t/j6TlRAgB

Have to try our something a little different

I need to use the money more efficiently and wisely. My main problem has been putting large amounts of money in the stocks that move in the wrong direction.

There is a rule that says When in uncertainty cut your position. Especially if the stock is showing strong RS in the case of shorting.

Start with a small position in uncertain position or better do not enter the position.

There are plenty of opportunities in the market. I almost make 20 percent in ARNA but there was not much money invested in it. This is a problem because cash was stuck with other stocks. I need to have cash available when I need it.

This diversification is not a good strategy. It is good to put money where you are making money. Do not buy more unless the stock moves in you direction or you are super confident technically.

I have to put my money where I can get money. I have to choose the best stocks instead of jumping around and losing money.