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Rolling in the money puts to repair a trade

Repair manYou know it. You sell a put option and the trade goes busted next day. If you have never experienced this, then you are still going to. That I can guarantee.

In the past, I tried to predict the market/stock direction so I could be on the right side of the trade.

Today, I laugh at such effort. It’s futile and you will never be right. At most, you may get 50% chance to be right. But that 50% is nothing to spend an effort for.

TD Ameritrade has on its website a tool called “Predict Wall Street”. If you decide to play it, you will find out that the community is 40% right (sometimes even 55%). My score of predicting stock movement is 50%.

I can flip the coin and get the same result.

So, don’t bother predicting stocks or the market.

Rather, learn techniques which help you when you are wrong.

When you sell a naked put and the trade heads south you have two ways how to react:
 

1) You are still bullish on the original trade and you consider the price drop just temporary.
2) You doubt your first assessment (you are probably no longer bullish) and want to improve your odds right away.
 

Next, I try to describe several situations which may happen and how I would react to them based on the above mentioned classifications.
 

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2 responses to “Rolling in the money puts to repair a trade”

  1. amber tree says:

    Rolling puts is a needed skill when you write puts. I have applied it a few times already with succes. Some rolls are still waiting for their success.

    Most of the time, I buy time to be right.

    In some cases, I stay convinced that the stock is under priced, and the just buying some more time can do the trick.

    • Martin says:

      Yes, it is about buying time to turn those bad puts into good puts. If anyone is not willing to give it that time, he has no business in trading. He is gambling. So if the trade turns bust, fine, roll it away and down and give it time to get correct again.

      Thanks for stopping by!

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