Options Writing Risk Management

1) Risk management begins not after you enter your positions but before you enter any positions
- Sell far out of the money options. Our objective is not to pick the winners but to avoid the loser. This fundamental difference in thinking is key to a successful trading "career" for the long haul.

2) Plan the trade & trade the plan
Set your mental stop loss limit at (example: 2X or 3X the premium value sold for) & execute it when reached. Period. This value is not fixed & can be adjusted depending on the individual market. This is speaking from experience. I have the battle wounds to show for. Instead of taking a small loss, I have had months of earnings wiped out for waiting too long to cut loss on not 1 but 2 occasions in 2006(N225) & 2007(ER2)....I am a slow learner.

3) Do a credit spread instead of naked options writing
For the more conservative trader, use certain percentage of your proceeds from the short option sales to buy a closer to the money option to offset the far out-of-the money short options which can partially offset your loses if the market goes against you.