Returning to the Proverbial Option Trading Well

I am often asked, “When I have a profitable trade and the setup still looks good, should I take the trade again?” The answer is, “Absolutely! Why not?” If the setup is still there and you feel the same about the trade and market, it totally makes sense.

Different From an Adjustment

When option traders make an adjustment to “fix” a losing position, it is many times a mental hurdle they must overcome. They are trying to save the position from an undesired outcome. But the problem is the psychological aspect in trading. No one wants to be wrong, so sometimes traders are clouded by their judgment when trying to adjust from a losing position. I often tell traders that P&L does not care how you try to offset the loss, but you do. There is no reason you have to make up the loss on the same underlying. Only you care. But taking a trade that still looks good after you’ve extracted money from the market on a similar position is much different.

Brand-New but Similar Trade

Think of the same setup as a brand-new trade. When you have profited from a similar position it is easier not to be clouded by bad judgment than it would be after a losing position or adjustment. If you still believe the odds are on your side and you like the risk/reward, the trade idea is probably valid. Here is a recent chart example of Goldman Sachs Group Inc. (GS) on a daily time frame.

In MTM’s Group Coaching class and with my one-on-one coaching students, I have done several short iron condors because of the various support and resistance levels the stock continues to trade within. Why would you not take advantage of that?

Final Thoughts

Now don’t get me wrong, I probably would not do the same strategy over and over again after, say, five times. That is just me being a little superstitious. But if the trade remains, by all means take what the market is giving you again and again up to your own limit.

John Kmiecik, Market Taker Mentoring

Trader Education