• AS A TRADER, you already know that
to make money in the markets you
have to take a risk. What you may not
know is that your risk management
doesn’t have to be relegated to only
stop losses or vertical spreads.
Maybe you got lucky and the markets did well, as did your overall P&L.
Plan A is working out beautifully.
But what if the market or your
stocks tank? It’s a simple question to answer in theory, but
tough to solve when your
screens are red and your
positions are bleeding
with every tick down.
That gap between how
you think and how you
act isn’t necessarily
your fault, or something
many of us can solve. It
might just come down
to how you set things up
going into a trade.
Fortunately, there are a
few strategies you can use to
hedge your stock positions at
the onset of a trade. Depending on
the volatility backdrop and how much
of a hedge you’re looking for, there
are options you
can wrap around
your stocks that
can not only
reduce your risk
but could even set
you up to man-
age your trades
smarter. But they
can also impact
your upside po-
tential. We break
it all down in “When a Hedge Is Not
Just a Hedge” on page 16.
When it comes to managing trades
more successfully, there are a couple
What’s Your Plan B?
other key components of options trading to help you see where you’re going.
For example, options greeks describe
the variables that can impact how an
option’s price may respond to market
One such greek is theta. Option
contracts have a limited lifespan, and
that means as time passes, the option’s
value decays. “Theta: Time Waits
for No Trader” on page 24 kicks off a
multi-part series on options greeks
by diving into theta: what it is, how it
works, and some of its lesser-known
The markets are dynamic and always changing, and you’ll never stop
learning from them. So it’s always
good to add a few key strategies and
concepts to your trader toolbox that
can help you make smarter decisions in
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