You should know the risk of every trade before you make it!
If that risk is too large for your comfort or financial situation, you shouldn’t be trading it. If you are relying on each trade to pay your bills, fund a child’s education account, fund your retirement, you shouldn’t be trading it. Not all trades are appropriate for your entire life savings. You should only be using funds that you would consider to be at-risk. These funds should be a reasonable portion of your total trading portfolio.
Remember, the best way to manage your investments is to use multiple positions in multiple sectors/industries and multiple security classes to properly diversify your money. If any one bad trade could significantly dent your investment capital, you are not diversified well enough. Options are a great way to invest and to diversify your trading positions – but stock options trading with your whole nest egg is not appropriate for just about anyone.
Be sure to consult an investment professional before implementing a new strategy. Discuss the consequences of your trading and consider the maximum draw-down that can occur and if your allocations are balanced well and are diversified enough.
[tags]trading risk, options trading, trading for retirement[/tags]