Basic Training: A Review of How to Protect Your Profits

  • Easiest method: Buy a 2-3 month put ATM or slightly an OTM put. Protect just those gains.
  • What do you do if you have a broad portfolio?
  • Hedging Rule of Thumb. Expect to spend about 2% of your portfolio for effective 3-6 month protection.
  • How do you reduce the cost of protection?
  • Buy a spread instead of an outright put, set up a collar, or set up a collar with a kicker.

Mail Call: It’s time for listener questions

  • Question from Ariell – Why should I ever buy puts? I can use a stop order in the stock for free and then put that extra capital to work in my trading account. By my math using stops instead of puts can boost your account 5-10% per year. That’s a lot of cheese.
  • Question from S_Warz – Do you trade options through dark pools
  • Question from Thankfulness – Do you have dark pool access?
  • Comment from H. Schwartz‏ – Who said option traders don’t celebrate holidays!
  • Question from L. Penguin – I have a question for the Options Bootcamp. I’m a new options trader and I want to buy a LEAP call because it looks like the stock is going to go to up in the next 12 months, but I don’t want to commit yet. I also want to generate income while I hold that position. What are your thoughts on selling the call while I have the leap? Also, this stock has an attractive dividend that I’d like to capture. Is this even possible? Interested in your thoughts, thanks!…I was thinking about buying a deep in the money call for the LEAP, and then depending on where the stock is trading at the time, sell closer to the money.