The options trade criteria section of every OptionID’d is the framework for trade execution. Typically including images for easy understanding the trade criteria usually includes; Entry, Stop Loss, Profit Target #1, Profit Target #2, and if appropriate, hold until expiration.
Savvy options traders never enter a position without first developing the options trade criteria plan. Should they choose to do so, they’ll be at the markets mercy or lack thereof. The primary benefit to knowing these levels before entering a trade happens after we’re in the trade. In that, we no longer have to decide what we’ll do next. We’ve already conducted the research and made our decision, now we just have to execute those decisions.
Key Options Trade Criteria
- Entry Level
- Stop Loss Level
- Profit Target #1
- Profit Target #2
- Hold until Expiry
The point at which a trade is favorable and we decide to enter the market via our selected strategy.
Stop Loss Level
A point at which the pain of capital loss is unbearable and we elect to close our position. Typically, at OptionID we keeps stops close to avoid suffering many sizable losses. We prefer to lose 10 trades quickly, than lose 1 trade slowly. The rationale, we don’t intend to waste time trading an option that isn’t moving as agreed. We’ll simply look for the next best trade.
Profit Target #1
The primary profit target level we’re aiming to achieve. In fact, this level will serve as the only exit point for positions involving single contract lots. However, should the need to adapt arise we’ll include that information as necessary.
Profit Target #2
Last stop on the profit wagon. We’ll look to offload any remaining contracts still held prior to expiration. Typically, profit target #2 is reserved for those trades involving multiple contract lots. Should a change become required we’ll include that information as needed.
Hold until Expiry
We’ll enter the trade and leave it to run its course. If this becomes necessary it may be as a result of an extreme move in our favor. Thus, we’ll alter the options trade criteria to reflect the need to hold until expiration. There is certainly no reason to pay commissions or slippage if not necessary.
Don’t want to trade options? Check out our sister site TickerID at the link below.