How to PROTECT your profits while letting them runIn the trading business you need to let your profits run while also managing your risks that means to cut your losses short.
Losses of unrealized profits are real profits that are lost. What if you could save them?
Well, there is a way...
It is not always available but it is one you want to know since if you can save 3 points of wiggle room and pay 1 point or less, over the long run it adds up to HUGE chunk of profit to your bottom line.
The reason I applied this method is because TSLA was doing 3 days in a row a push and gap up, so it seems likely people will want to take profits... but this is TSLA... it can shoot up above 500 and reach who knows where... (she did it before...).
So I want to TAKE MY HUGE profit, while giving it the option to continue to the moon, if it will want to do so...
You can never take the very top anyway, so if you "give back" 1 point of profit it is considered reasonable, but if in case the price falls down sharply or gapped down I can give back maybe 3 points with this strength of volatility, which is undesireable.
So what I did?
I sold the PUT option at strike 470 at a price of $15 (my point was $17) so for me it is even less than a point so it is very attractive deal to me...
Then... if the price had crushed down it meant for me that I sold my stocks at a price of 470 while paying the hedge cost of the PUT option of 15 so it is equivalent to me that I sold my stock at a price of 455, which is ALMOST the top. Making sure ~90% of the profit stays in my pocket. So I WIN.
If the price would continue to shoot up, then I making SUPER HUGE MONEY, while sleeping like a baby, that I already realized my HUGE profit. So I WIN.
So either way, I WIN !
Since the price did not crushed the next day and hold, and my stop loss advanced, so there was no longer need to my PUT option hedge since if price will fall I will get out with the stop loss with the same profit. So I sold the PUT hedge for a small loss, so the hedge cost me 0.25 a point overall. SUPER WORTH IT !
FYI, this comes from years of experience, but I give you some of my experience, you could do it too.
The moral of the story... when you have HUGE profit, and you feel itchy to take profit, don't ! and try to hedge yourself with options ! this way, if you were wrong and you have GME, AMC on your hand, you don't let them go, and you WIN either way ! Sleeping like a baby.
