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9 Weeks to Better Options Trading: Managing Risk

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Veteran options trader Steve Smith breaks down risk management.

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Editor's note: To help investors profitably navigate the options market, Minyanville is launching "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 and author of OptionSmith (Click here for a two-week FREE trial and get Steve's best trading ideas in real time) Steve Smith will demystify a range of topics from options pricing to trading strategies to special situations like earnings reports and takeovers.

For the first article in the series, click here.

If you are a novice options trader, we suggest you start with Steve Smith's 6-Week Options Trading Kickstarter series.

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.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

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