How to Avoid Breaking the Bank on Options - FST
It’s been awhile since I traded. I’ve been working on other projects and basically letting this market settle down. I went through my watch list a few days ago and a lot of my stocks are starting to show good patterns, signs of having reached bottom and turned back up…and looking like the options i doubled my money on last spring!
So I made this purchase just now:
FST (Forest Oil Corp)
July 70 Call @ 2.50
Underlying stock was at 66.68, with support at 63.90, for a potential risk of about $2.70 on the underlying stock. The delta of my call is .40, which equals about $1.08 potential risk on the option, or $108 dollars for one contract (100 options).
My current account balane stants at $4400, making $108 less than 1/4 of a percentage point risk on my total account.
I put in a stop limit order on the underlying at $62.10, or about 3% below the support to allow for some wiggle room.
Position sizing like this allows me to continue trading for a long time even IF they are all losing trades (they won’t be!). Keeping your potential risk below 1% of your account value if your account is between $5000 & $10,000, even less if you have more money.
Stay tuned!
Suzanne @ May 30, 2008