How to Repair a Losing Option Trade
All traders make losing option trades from time to time no matter how experienced they are. Fortunately, options trading is not about being right every time. Successful traders know that the key to making profits in the options markets is to maximize gains and limit losses. Keep that idea in mind and you will be well on your way to success in the options markets.
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Instructions
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Resist the urge to "double down." For example, say you buy an orange juice call option because you feel the orange juice market is poised to make a strong bull move. You enter the option trade, but the market subsequently declines. At this point, some would suggest buying additional options as the market declines in order to increase profits on the predicted bull move.
This is a bad idea for two reasons. First of all, the fact that options expire means that you have a limited amount of time to profit off of a market move. Secondly, the fact that you failed to accurately predict the direction of the market shows that you may have made a mistake in your projection. Since there's some uncertainty in this situation, it's unwise to increase your market exposure.
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Re-evaluate the trade. Review your market projection and decide if you still have confidence in it. If you feel you made the wrong projection, it's better to scrap everything and go back to the drawing board. If you feel you made the right general projection, but simply entered the market at the wrong time, wait for an opportunity to re-enter the market.
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Re-enter the market only when you get some kind of confirmation. For example, if you use technical analysis, you should look for something such as a moving average crossover or a reaction off of a support level to confirm that it's the right time to enter the market.
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