Here is a topic I cover daily when it comes to options trading. It is so important that I cannot go a day without bringing it up several times in MTM’s Group Coaching class or with students in a one-on-one environment. The topic is always having a hard profit taking target when you have a position on.

Risk Removal

One of the main ways to be an effective risk manager as an options trader is to implement profit taking orders as soon as you have your position on. Do this immediately even if profits are not quite realistic in a day or two. Good-till-canceled (GTC) sell limits for debit positions and GTC buy limits for credit positions can be and usually are huge difference makers. As I like to say, it is not just about taking profit, it is also about removing risk. A profit or an additional profit cannot be realized with the position gone, but the risk for that position will be gone too. Let that sink in for several minutes…or even hours.

There’s Not Much to It

You might ask, how easy is it to put a profit taking order on? The answer is very. If you have the order in place, there is a chance it can be filled. If you do not, obviously there is no chance. The choice is very simple. Here’s the thing I like to tell option traders: There might be one instant in the day, whether at the open or later in the session, where the order could get filled. If the order is there already, it will fill. Saying you will keep an eye on it is not the same because you may miss out on that moment.

Final Thoughts

Extracting money from the market is not easy. There are several moving parts when it comes to trading. Using profit taking orders is a no-brainer and can absolutely improve your option trading results. There are not many easy things you can do as an option trader to improve your results, but this for sure is at or close to the top of the list.

John Kmiecik, Market Taker Mentoring