Plan Your Option Trade and Trade Your Option Plan

Tom Gentile

Posted in
Education

By: Tom Gentile
January 13th, 2023

4 mins read

Many of you may have already heard that saying when it comes to trading.  I just threw in the word option as that is what I primarily am – an options trader.

There are times where something comes up when watching the financial news networks that may say something about a trade you are already in that makes you doubt whether you should stay in the trade or bail on it.

For the most part my experience and history with trading options says to stick with your option trading game plan as your intuition and reason for the trade to start with usually works out.

Don’t Get Shaken Out of an Option Trade Prematurely

If you find yourself watching too much news, online or on tv or elsewhere the risk is seeing a headline announcement or story that makes you question the trade and in some cases traders stop out of the trade only to see their original idea paly out successfully.

My education to you all in that situation is to consider stopping watching the news and reading headlines as it may be causing you to get more emotional about your trade than you need to be.

Example on ServiceNow, Inc. (NYSE: NOW)

Back on January 5, 2023 we highlighted an option trade on NOW to subscribers to an alert service whose content we are responsible for.

The next day the stock was down over 10 points.  There was an online article online about a research company’s view that the stock was too risky to buy  right now.

One of my instructors and I had a discussion on whether or not to cut the option trade loose.  He asked if we just cut it loose early and at a smaller loss than what it could become because of that article’s view.

I am not going  to show you the option position we highlighted, because the price of the option then, after the price drop and what it is at the time of the writing of this educational piece is now; the pricing isn’t the important part.  The lesson is.

And the lesson is this.

Plan Your Option Trade and Trade Your Option Plan.

The option trade ideas we highlight come with a trade management plan of stopping out at a 50% loss.

As long as the option value isn’t losing 50% we maintain the trade and anticipate it working.

In our discussion I was asked if we should stop out based on that article my direction was to maintain the trade and not get shaken out because one person writes an article.  I have found in my trading that isn’t the best thing to do.  I said we stay the course and only worry about it if it hits our stop.

We stayed the course and since it did not hit its 50% stop the trade is still being tracked.

As of now it shows it is up 70%.  Here is a chart view of NOW from the start date of the trade to present.

Figure 1: NOW Stock Chart from Start Date of Option Trade to Present
Figure 1: NOW Stock Chart from Start Date of Option Trade to Present

Staying the Course on an Option Trade

It is very tough to hear or read things that cause you to question being in a trade or not.

The thing to ask yourself is do you / did you have a plan before you placed the option trade?  If you did then it is up to you to stick to that plan.  Having NO plan makes you at even greater risk of getting shaken out on the news.

Having an Options trading plan helps you maintain your option trades.

We are coming up on Martin Luther King, Jr. Day and the markets will be closed that day, so we want you all to first and foremost enjoy your three day weekend as the country honors Dr. King.

App: Toms Option Tools

Market Insight articles may show images of lists of stocks meeting a variety of options parameters like Unusual Call and or Put activity or Expensive IV found on my app Toms Option Tools.

Other times I will have other charts may work to amplify my educational points. 

Those options data lists, however, can be found on my app Tom’s Option Tools. Use your device to search up and download this app and get free access to the Morning Reports section of the app.

Other parts of the app are available at a premium subscription rate, but the Morning Reports Lists are yours free.