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level: Risk Management & Exit Orders

Questions and Answers List

level questions: Risk Management & Exit Orders

QuestionAnswer
What are the 2 meanings / uses of the word Spread?1) The difference between the Bid & The Ask (the market maker get the spread) 2) The difference between 2 Strike prices being traded at the same time during a Credit Spread
What is the difference between ITM & OTM strike price?The ITM strike price has BOTH an Intrinsic and Extrinsic value BUT the OTM strike price has only an Extrinsic value and no Intrinsic value
What is a Floor?The price where a security comes down and then reverses back up at least 2 times in the same area
What is a Ceiling?The price where a security comes up and then reverses back down at least 2 times in the same area
What is the name for a security that is moving horizontally between a floor and a ceiling?Channel
What is a Resistance?The higher price area in a TREND where the stock comes up and then reverses down
What is a Support?The lower price area in a TREND where the stock comes down and then reverses back up
How many points of contact do we need to draw trends lines and Fibonacci lines?3 points for trend lines 2 points for Fib
Before entering any trades, what are the 3 things MUST you do?1) Prepare, decide and write down my Exit Number (no emotion) 2) Prepare and decide how much profit I expect to make 3) Prepare and decide how much I am willing to lose?
How many % loss are you looking at when you do a Credit Spread if it goes wrong?About 30% of the Risk Capital
What is the 2 main difference between a Winning Trader and a Losing Trader?1) Winning Trader knows as how manage the losses 2) Winning Trader keeps the losses small (and losing trader does not)
What is one of the most fundamental rules of Trading?Cut your losses short
what should I do if I cannot watch the marker during the day?I set up and use Emergency conditional exit order
How can I get more experience in Option trading?By using Paper money and doing a lot of back testing
How many days left in a RUT trade to start considering to exit a trade for a profit?7 days or less
IF POTM is below 70%, you exit at the Mark and the order does not get filled. What should you do?Offer a higher premium until the order does fill
What are the 2 Rules of the RUT trade?1) shutdown if POTM is below 70% 2) Close the trade if the RUT is below 3% of the Short Strike on Thursday (on Monday to thursday)
What are the 2 things can you do to "protect" yourself from a RUT trade going bad?1) set an alarm in case you miss the trend going down 2) set up an automated emergency Exit order
Which strike price do we choose to set up an emergency Exit order?The Strike price just before (higher than) our strike price (i.e. strike price 1485, we take 1490)
What are the 2 kinds of emergency order?1) "Stop loss" order based on the PREMIUM (not recommended) 2) "Conditional" order based in the Security PRICE
Why we do not recommend to use Stop Loss Orders for emergency exit?Because it uses Premium (as opposed to security price) and Premium tend to spike prematurely
What are the regular ticket fees from your brokers?Usually between $4.95 to $9.95
What would be an ideal broker charge?Ideal broker charges below $1 for commission (contract fees) and no ticket fees
What is the difference between a Cash Secured, Standard Margin Account & Portfolio Margin Account?Cash Secured is 100% backed up by my cash Started Margin account you put 50% of the cash and the other 50% is loaned by the broker Portfolio Margin account you put 15% of the cash and the other 85% is loaned by the broker