Option Investor
Educational Article

Shorting Stock to Cover a Sold Put

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The science of derivatives is complex; it involves statistical analysis, mathematical models, and intricate numerical solutions. Those who want to excel in this field need to be familiar with algebra, calculus, and probability analysis, and they must apply this knowledge correctly across a range of subject matter. However, a person who completely understands the mechanics of option trading but can not control his emotions is destined to fail in the market.

One of the best ways to overcome a "reaction-based" mentality is to establish a plan of attack (before you begin to trade) that allows you take control of your feelings and remove the possibility of an impulsive action. Experienced traders are acutely aware of this fact and thats why they use predetermined profit targets and stop-loss orders, as well as mechanical adjustment techniques, in conjunction with their option strategies. Indeed, position management is a fundamental requirement for consistent profits in the business of trading options and today we will discuss another common strategy for limiting losses with uncovered puts.

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