Happy Wednesday, traders.

Ben here.

One of the biggest challenges that options traders face is knowing when to exit positions.

The critical issue is safeguarding your trades from sudden market downturns. 

Then, you’ve gotta maximize your potential returns in an environment where fortunes can change in the blink of an eye. 

I know this is a significant concern for traders because of the high volatility inherent in options markets, the frequent stories of huge losses caused by holding positions for too long, and the challenges I hear about from my students. 

The importance of this can’t be overstated, especially in today’s economic climate…

Market unpredictability is at an all-time high due to factors such as global political uncertainties, inflation, technological advancements (like AI), and sudden shifts in consumer behavior. 

And this week, the swings could be even bigger with the Federal Open Market Committee (FOMC) meeting taking place.

Now, more than ever, you need to be equipped with an exit strategy that can help you nail options trades to the maximum. 

This is not just about protecting your portfolio — it’s about seizing opportunities in a way that balances potential gains with the risk of loss.

Whether you’re a seasoned trader or a newbie to the options market, there’s one method I think every options trader should employ — scaling out of your positions.

Understanding how to effectively scale out — i.e. selling off your profits incrementally, in chunks — can be a game-changer for your options trading.

With that in mind, let’s go over the four reasons why I scale out of my trades (and why you should do the same)…

1. Reducing Risk

At its core, scaling out is a risk management tactic. I scale out of trades to reduce my risk. 

The volatility in the options market can turn your unrealized gains into unrealized losses in mere minutes. 

By choosing to sell options in segments, you spread your risk across different market conditions. 

This approach minimizes potential losses if the market takes an unexpected turn after some of your contracts have been sold. 

It’s a safeguard against the all-too-common market fluctuations, ensuring that not all is lost if things don’t go as planned.

2. Locking in Profits

Another appealing aspect of scaling out is securing profits in chunks. 

It feels good to lock up profits, and you need to start getting comfortable with doing so.

Many newbies tend to greedily hold onto their contracts too long, expecting more profits, only to watch their gains evaporate.

By locking up gains incrementally, you’ll ensure that some profit is taken off the table early, which can be especially beneficial if the market later turns volatile or starts to fall. 

Moreover, if the market continues its upward trajectory, subsequent sales can further increase overall profits. 

It offers a balanced approach to trading, where securing a base level of profit is prioritized while still leaving room for additional gains.

3. Flexibility and Adaptability

Flexibility is a significant advantage of scaling out. 

Scaling allows you to adjust your exit strategy in real time by responding to market movements and news. 

Example: Let’s say you’re in call options with two weeks left on them. You have confidence you’ll reach your strike price by expiration, but the underlying stock is up big today. You don’t want to exit the position entirely (because you still think it will hit the strike price), but you want to take advantage of the gains on the day. This is a perfect time to scale out of a portion of the trade. 

Instead of being locked into selling everything at once, you can scale as needed, taking advantage of favorable conditions or cutting losses when the market outlook appears opposite to your position. 

This dynamic approach to trading is invaluable, offering the agility needed to navigate complex market environments successfully … without entirely exiting a promising setup. 

4. Emotional Control

Options trading can be an emotional rollercoaster. The volatility in options contracts can lead to some crazy emotional swings in traders. 

But scaling out helps mitigate these emotional highs and lows by distributing risk and potential impact over time. 

This strategy can lead to a more balanced emotional state, reducing the stress and anxiety associated with putting all your convictions into a single exit price. 

I promise you that if you scale out and lock up profits incrementally, your emotions will be more even — even in big positions. 

A more stable emotional outlook can enable you to make more rational, less rash decisions.

It’s crucial to understand that scaling out isn’t just a mechanical strategy but a philosophical approach to trading. It embodies my trading truths — patience, discipline, and flexibility. 

By adopting a scaling approach, you’ll start to value steady progress over quick wins, understanding over speculation, and strategic planning over impulsive decisions.

The advantages of scaling out — risk reduction, profit locking, strategic flexibility, and emotional stability — are intertwined, each point reinforcing one another. 

Together, they form a comprehensive approach to options trading that respects the market’s complexity and unpredictability.

Scaling out of options trades is a multifaceted strategy that offers numerous benefits. 

It allows traders to navigate the stock market’s inherent risks and opportunities more effectively, capitalizing on gains while protecting against losses. 

By adopting a scaling-out approach, traders empower themselves with a toolkit for managing investments that is both prudent and adaptable. 

WARNING: This strategy does not guarantee long-term options trading success, but it can significantly enhance your ability to achieve it. 

Before we go, let’s look at…

💰The Biggest Smart-Money Bets of the Day💰

• $2.64 million bearish bet on XLF 09/20/2024 $41 puts @ $1.41 avg (seen on 3/19)

• $1.43 million bullish bet on NIO 05/17/2024 $4 calls @ $1.43 (seen on 3/19)

• $1.01 million bullish bet on AMD 03/22/2024 $180 calls @ $3.95 (seen on 3/19)

Happy trading,

Ben Sturgill

P.S. The Federal Open Market Committee (FOMC) meeting is creating a MASSIVE opportunity for traders…

TODAY, March 20, at 12:00 pm ET, Wall Street legend Jeff Zananiri is going LIVE to share how he’s planning to capitalize on this pivotal market event.

Most retail traders approach major catalysts all wrong…

But Jeff’s got decades of experience trading these kinds of catalysts…

And will share the EXACT method he and other pro traders use to take advantage of these mega macro events.

DO NOT miss this time-critical, invitation-only live event — CLICK HERE TO RESERVE YOUR SEAT.