How do I know when to hold and when to sell?
One of the biggest dilemmas facing any options trader is whether they should sell or hold. This kind of a decision can cost or make someone a whole lot of money and is something that should be thought about carefully. Especially with short term options trading, you have to be on the ball, particularly at the close of each day. There have been many studies done to see what the best technique is for holding or selling. One of the studies involved a group of options traders who bought every day on the close and sold on the open. A second group bought on the open and sold on the close to see what kind of a difference it made in the outcome of the option trading. The group who sold before the closing actually lost money over the course of time, but the group who held overnight did quite well.
This is just one of the many studies that have been done and so you really have to make your own decision based on not only the knowledge that you have of options trading, but also based on your gut feeling. Only you can make the decision, but here are some things to help you decide whether to hold or whether to sell.
First of all, look at the history of the stock that you are considering for option trading and try and see what kind of a trend it has had in the last little while. Although this can change quite quickly, it will give you an idea of which way the stock will most likely go. Do as much research as you can about the item and see if you can find any litigating factors that will affect the outcome of the stock in the next little while. Then of course, do what you feel will be best. If you feel that you should sell, then sell, but if you are more comfortable with holding, then that might be the right decision. Whatever you do, remember that you should feel comfortable with what you are doing with options trading.