Option Investor

On The "Watch" List -- SLAB

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The bearish position in Silicon Laboratories (NASDAQ:SLAB)
has been elevated to an "early-exit" candidate in the wake
of Wednesday's upside activity. As we noted earlier in the
week, "a move above $34 on heavy volume" would be a
potential exit signal however conservative traders should
consider closing the play now to limit losses. Those with a
more aggressive style might wait for the issue to test the
recent resistance area near the sold (call) strike at $35
before adjusting or covering/exiting the short option in the

Remember, the key to success in this strategy is position
management. There will always be unsuccessful trades,
but their negative effect on your account balance must be
reduced whenever possible. That is the only way you will
have sufficient profits to overcome the rare "unpreventable"
losses that occur in any financial markets. Another crucial
component of profitable portfolios is diversity. The age-old
adage: "never put all your eggs in one basket" holds true in
the world of derivatives and professional players generally
limit their overall capital exposure to 10-15% on any one
position. That ratio is also appropriate for most spread and
combination techniques and traders who utilize this approach
rarely experience catastrophic losses.

More on position management this week-end...

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