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Timing Options Sales
As we note in our article about timing options purchases, timing options sales can be as important as good fundamental and technical analysis. In fact, the point of analysis is to determine how low or how high and equity will go and when it will do so. The most effective use of trading capital is when a trader maximizes his profit but also minimizes the time for which his capital is tied up in a trade when trading long or the amount of interest paid when trading short. Tracking the weather helps in timing options sales for agricultural commodities such as wheat, corn, soybeans, or coffee. In timing options sales a trader successfully anticipates a price increase and buys calls or a price decrease and buys puts. When the market moves as anticipated he must decide whether to take a profit or wait for a larger gain. If a trader wishes to buy or sell the equity in question timing options sales only works when trading American style options and not when trading European style options. European style options can only be executed at expiration. In either case a trader can always exit an options contract by making the opposite order in which case timing options sales is always possible and important.
Return on Trading Capital
Speculators trade options to make money. When they trade wisely they gain and when they trade foolishly they lose. The degree of success and failure often has to do with timing options sales and purchases. When the market starts to shift a savvy trader will consult both fundamentals and technical analysis tools. When analysis indicates that a change will happen sooner than later he will purchase a call or put. When analysis indicates that a change will not happen for a long time he will wait or even sell a call or a put. The point of the entire exercise is to make money in the shortest time span that is reasonable and, of course, to maximize profits along the way. When a trade has run its course it is often time to take your money and look for another trade rather than wait for that last bit of profit and even risk a loss. While one trader is patiently waiting for that last bit of profit, another is making money on a new trade.
Managing Risk
Risk management in option trading is very commonly the point of trading options. Companies that mine gold, grow and sell wheat, or buy coffee to roast and sell commonly buy call or put options to avoid being hurt by unexpected price changes. To the extent that a company needs to buy or sell at a given point in time it may seem unimportant to time the sale. Certainly the price will determine whether the company exercises the option at expiration. However, the price of an option may move in such a way as to make timing options sales more profitable than simply waiting until a sale date for the commodity in question.
