Why did I take profits? It was still going in my intended direction, it didn't hit my stop, and I still had plenty of time left until expiration. So why?
I took early profits because even though I have a target, it doesn't mean that the price is going to make a bee line right up to it. Instead there will be some ebb and flow. Today I seen a bit of a gap and a small doji candle. This tells me that we're running out of steam, that the gap was a bit too big and the bulls are now weak at these prices. In addition to that gap and doji I've noticed the volume has been dropping as we've been going up. The bulls are loosing their gusto.
So, I took profits and will keep DOW on my watchlist for a possible re-entry.
There are 2 other things to keep in mind when trading:
1. "A bird in the hand is better than two in the bush." (i.e. take profits when you can), and
2. There are many other great set ups either ready to trade or coming up which will give me a better edge than this current position. (i.e. you want to always get the greatest bang out of your trading dollars).
I sold this option for $4.00, after buying it for $3.25 approx a month ago. That gave me a net of $0.75 ($75 per share) for the trade. Again, doesn't sound like much, however the ROI was 23% in one month. If you annualized that out it would be 276% per year gain.
From here, it goes back on the watchlist for a possible re-entry - however if there are better set-ups, then that's where the trading dollars will go.
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