Tuesday, January 23rd, 2018

How much profits to risk?

 How much profits I should risk?

Lets say you have a trade and your target was to earn $1 gain till expiration. Sometimes things go your way and what happens is you are in an enviable position where profits just fall in line long before expiration day. Many traders will do what is easy, they just let the profits lie in the winds and get killed.  Todays markets are very tough. Profits hardly arise, and when they do, they tend to disappear quickly. So a “static advisory” service will let those profits sit there and wait for every nickel and dime to fall in place, before expiration, and hope everything will go right. Often times that is not the best alternative.


A general rule of thumb is when you have achieved 70% of targeted profits, one should looks ways to to protect them. Protecting profits is essential to successful trading. Since we have limited profits as income traders and trading IRON CONDORS and CREDIT SPREADS those profits can suddenly turn into losses and that is a big regret. I am sure many of you have been there and kicked yourself not getting out early. This kind of dramatic turn around is very much expected in the type of markets which we have now in the Summer of 2008. Markets are going up 200 points one day, and down another 250 the next.


Successfully closing trades, and taking profits when you have achieved 70% of your maximum gains is always a prudent thing to do. Just think this way, would you stay in a trade for another 0.10 cents or 0.15 cents for 3 more weeks and risk 0.85 or 0.90 cents taken away from you?


Static Traders often sell IRON CONDORS and CREDIT SPREADS for less than 0.50 cents each side and so they have to stay stuck and extract every nickel and dime. They have no choice !They risk market conditions to begin with by selling spreads so thin, and than they stay at the mercy of the markets to get the last drop out of them !


When I initiate IRON CONDORS or a CREDIT SPREADS, sometimes I initiate a GOOD TILL CANCEL order to buy back that spread for 0.10 cents. You can stay with the trade for the last nickel or dime and that is personal choice, and you do not have to place that order. There is nothing wrong with that.


However, often times you would be surprised ,when you get filled much earlier before the expiration day, and your margins are released quickly and the capital is ready to be deployed in the next trade for another solid return. This way, you cycle your profits more often and more than once in a 30 day cycle and maximize your returns.


Like they say on Wall Street – You can’t go broke taking profits.


12 Responses to “How much profits to risk?”
  1. I think people should take off half the gain to lock in profits and by put options below the floor to protect the remaining profits.

  2. alliance says:

    I believe locking profits in the bank. By doing that you have consistent gains if so they are little less than the full home run. You can always get back in the trade if its still valid.

  3. Хм… Но, как говорится в пословице, а воз и ныне там 🙂

    Ксюнs last blog post..Комфорт со встроенной мебелью

  4. bugerpop says:

    ну я тоже когда то так думал. да и щас так же

  5. I don\’t normally leave comments! But what you said here makes one think! Would you mind if I placed a link back from my blog?

  6. andranik says:

    cool, clasno pishesh, prodolzhay v tom zhe duhe

  7. nazar says:

    pishite esche na podpbnue temu

  8. pankrat says:

    ýòî è òàê òåìàòè÷åñêèé áëîã

  9. gleb says:

    êëàñíî íàïèñàíî, óäà÷è â áëîãå

  10. galya says:

    clas, dolgo etot post pisali?

  11. Jestine says:

    You actually make it seem so easy with your presentation but I find this matter to be really something which I think I would never understand.

    It seems too complicated and extremely broad for me. I am looking forward for your next
    post, I’ll try to get the hang of it!


Check out what others are saying about this post...

Speak Your Mind

Tell us what you're thinking...
and oh, if you want a pic to show with your comment, go get a gravatar!