Closing a Profitable Trade

One of the difficult things about trading is knowing when to close a trade. When a trade becomes profitable, it is often easy to become greedy and hold on to the position hoping that it will become even more profitable. In undefined-risk trades, I have learned the hard way that when you have a profit, you should go ahead and take it. It is always better to leave money on the table as opposed to wishing later that you had done so.

With today’s spike up in crude oil, which at one point was up $1.20, as well as the slight contraction of implied volatility, offered an opportunity to take a quick profit on this trade which I had entered just this past Friday. After commissions, the trade yielded a profit of $32.58 per contract, or nearly 7% return on capital.

I had originally set my target exit point at 50% of the credit received. However, only three trading days in, I found myself in a situation where I could close the trade retaining 33% of the credit received. And even so, I found myself wrestling today with whether or not to close the trade out. In the end, my better judgment prevailed over greed.