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9 Weeks to Better Options Trading: Managing Risk


Veteran options trader Steve Smith breaks down risk management.

Editor's note: To help investors profitably navigate the options market, Minyanville has launched "9 Weeks to Better Options Trading," an educational series aimed at increasing trader understanding of the nuts and bolts of options, with an emphasis on real-world applications. In this series, veteran options trader Steve Smith will demystify a range of topics from options pricing to trading strategies to special situations like earnings reports and takeovers. Read the kick-off to the series here.

MINYANVILLE ORIGINAL Risk management may seem like a complex topic, in reality it comes down to a few key points -- make a plan, make sure your trades are the right size for your risk threshold, and make sure you fully understand the plusses and minuses of the strategy chosen. And always, always have an exit strategy.

Ask anyone in any field -- business, sports, medicine, or the arts -- what it takes to achieve measurable success and without a doubt, they will mention consistency. A good definition of consistency is the ability to produce above-average results over a long period of time. For the most part, those that occupy the various "Halls of Fame" did it through a lifetime of above-average achievement.

Taking big risks may be exciting for near-term glory, but long-term success, particularly in investing, is an outgrowth of properly managing risk. And by avoiding situations that can lead to complete failure, we put ourselves in a position to succeed.
No positions in stocks mentioned.

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