Step 3- Options Adjustments Strategy
Welcome to one of the new articles in the options trading strategy. As we had discussed in our previous article about the market view sheet. I hope you have learned something new. Now, we are going to discuss the adjustment in options trading.
We are going to start step number three that is adjustments and I’m going to tell you why the adjustments are important and how and when you should do the adjustments because always the adjustments are not required and sometimes doing adjustments can increase your losses. So, we have to understand before I tell you different strategies to do options adjustments that why and when and how you should go for adjustments.?
You might be remembering there are four steps in implementing any option strategy. The first is the market view which we have already completed. The second is strategy. I’m going to talk in last because before understanding the strategy, you have to understand the adjustment and you have to also understand the exit. So, these articles will not be very big. This will be hardly two three articles for adjustments and maybe two hardly one or two articles for exits and after that, we are going to go with strategies.
It is not important that how many strategies you know but it is important how many strategies you are an expert in. Even a single strategy you know and you are an expert in that strategy can make a lot of money for you but if you know a lot of strategies but don't an expert in any one of them, I think it's a classic example of how people lose money in the stock market. They want to try every strategy. There is no good strategy or bad strategy. There is only good execution and bad execution. So, even with a good strategy if you do a bad execution, the result is going to be losses and, in the future an option bad strategy and bad execution mean big losses.
So, let's go forward and first understand point number one. So, what is an adjustment? So now if I tell you are going to any war. You have to know the offensive and defensive techniques also. So, all strategies you have to know to defense the war. It's very easy to get into war but it's very difficult to come out of the war without losing your nose, ears, or head.
So, if you know the adjustment strategy, you can come out with any bloody war in the stock market with minimum losses but at least you will not lose your head. Do you understand what is your head in the stock market? Your capital is your head because if you don't understand the adjustments properly, I have seen people come out without a head that means their game is over from the stock market and all the capital is lost and the rest of the period and rest of the life, they will spend cursing the stock market. It's not going to help the person or the country or this whole society.
When the market moves against you, at that time, the adjustments are very important. Now, the second question: should I do adjustments always? The answer is, No. There are going to be certain periods or you can say conditions in which it is going to be beneficial. So, when I will explain to you the strategies, I will tell you that at what situation, which kind of adjustment is going to work, and that time, this knowledge is going to be helpful. So that's why I’m taking step number three first and step number two which is the strategies or how to make an entry. I will take it in the last because once you go through with this, you will be ready for starting your testing.
Now, you understand that these are not the only type of adjustments. These are some of the famous adjustments. There can be a thousand ways you can adjust your strategy. Every option adjustment strategy has its up and down. So, one thing you understand generally you do adjustment if market after doing the adjustments come on the same level trend, then you can make a profit or you can save your losses. But if the market continues the same trend like it keeps moving up, no adjustment will be able to help you much. There will be losses but there will be fewer losses. Without adjustment, there will be a bloody and lot of losses. Lots of adjustments will not be bearable that's why before entering into the stock market, you must have a piece of deep knowledge about the adjustments.
If you're coming to an options strategy, it's all about money. You pay money to receive money. So, there is no business where without investment, you can make some money, and this business i.e., option selling is completely based on money, and one more thing you understand that if your tools or your software's or your system is strong, you are a stronger investor.
Without being having a strong infrastructure, you cannot be successful. So, software and all these things are just a part and it's only for learning something. If you want to be a professional options trader and you want to make money, don't shy away from buying the best stuff available in the market. So, you should always have the best advice, best apps, best infrastructure in front of you If you want to be successful otherwise don't come here just invest in a mutual fund.
This is a type of adjustment like the category of adjustment. These are not only adjustments but also a key to your success in options trading. So, there is an adjustment name average out. So, now it's very easy like what happened when you sell options for supposing for 10 rupees. When the market moves in that direction, suppose you sold the call option at 10 rupees and the market started moving up. So, what will happen? Your 10 rupees premium will become 20 rupees and that time sometimes not always. If you know that market is just moving up and that it will come down, these are some small volatilities and that's why it's moving up but it will come down and at that time, adjustments may make sense but one more thing you understand that for adjustments, you need extra capital. So, if you don't have a lot of capital, then it will not be possible for you to trade in options with adjustments. I hope you got the point of the article what I want to tell you.