How we can minimise losses in optin trading

Question

money making

Answer 1

there are no guarantees of profits in any kind of equities investing

Answer 2

You mean minimize losses in option trading?

I think two way. 1. Setup a stop lost. You can do that by setup your pre order. Calculate your predetermine acceptable lost and put an OCO order. 2. Use hedge strategy. Buy both put and call option at the same time. Same number of contract for both put and call option.  

Answer 3

Don't sell options, buy them.

Answer 4

All good answers, however before you start using spreads you should consider the tax implications and form 6781.

You may be trying to hit home-runs instead of base hits and need to work on your technical analysis abilities, before your option strategies.

Answer 5

I'm afraid the only good answer is that you need to learn more about trading options. I know that is exactly what you are trying to do by asking the question, but a full answer would require hundreds of pages of text.

I recommend you read some good books on trading options, such as "Options as a Strategic Investment" by Lawrence McMillan and "Option Volatility & Pricing" by Sheldon Natenberg.

For a quick answer, I will mention some basic principles:

Learn to use implied volatility to your advantage.

Learn to use spreads.

Learn what the risk factors are, as measured by "the greeks".

Learn how to adjust positions to control those risks as circumstances change.

Finally, strictly limit the amount you put at risk on any one underlying issue or industry.

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I also want to comment briefly on the respose by FoxHound. His first suggestion was

"Setup a stop lost. You can do that by setup your pre order. Calculate your predetermine acceptable lost and put an OCO order."

Depending on the circumstance a stop loss can be effective or very ineffective. I do not understand why he is discussing an OCO (one cancels the other) order.

His second suggestion is

"Use hedge strategy. Buy both put and call option at the same time. Same number of contract for both put and call option."

I totally agree that you should use a hedge strategy, but there are much more effective hedges than a straddle or a strangle, the specific type of hedge he recommended.