Knowing when to sell with a profit is harder than knowing what and when to buy. If you think I’m joshing, try it sometime. You’ll love the destination, but you’ll hate the ride.

I’ve been getting questions about when to sell TLT 89 calls for a profit. They were suggested here on June 10th; and they’re presently up over 150%……. 

http://oneguysinvestments.com/…..ment_23008

The question is complicated (isn’t everything) by the fact that options carry leverage and they eventually expire…..worthless or otherwise. Profits can evaporate quickly with options so be aware of that and consider it in your exit plan. Like most questions about trading, the simple answer is usually a question…..and the question is: what does the chart say?

Get into the habit of either setting a pre-determined profit objective (200%?) and/or letting the chart take you out of the trade. The reason I like these techniques is that it takes the emotion out of the trade; and it also reduces the tendency to second guess (it’s not your fault, it’s the chart). 
 
Looking at a daily chart for TLT we see that there is chart and Fibonacci resistance at about 95.00 and we’ve hit that. The question becomes whether the price will punch through in time (before July 17) for TLT to make a run to 100.00. Feel lucky?

Let’s look at a 1 hour candle chart. TLT started up on June 10th and has established a nice 1 hour trend since then. Draw a line from the bottom on June 10th through the lows on June 18th and July 1st. Also consider chart support/resistance, Fibonacci support/resistance, common numbers, round numbers, voodoo…….you get the idea. At this point, chart reading is more art than science because a key variable is your personal risk tolerance (yes, giving the market back YOUR profits is a risk). You should try to decide in advance what charting techniques will be most important in your decision…..or decide that you’ll make the decision when the time comes (if you have ice water in your veins).

Anyway, to cut through this, should the trend line on the 1 hour candle chart be breached a red light would go on for me. If the price then continues down, dipping below the low from July 1st (93.24) I’d take my 100% profit and call it a good trade.

At one point this trade was near a 200% profit and one could wonder aloud whether it is prudent to give back half of the profit on any trade (in this particular trade it is caused by the effect of option leverage). Again, "art versus science" in that you have to assess the complete picture. The premise for this trade was a market correction……..has it run its course? Will there be enough time for the correction to "correct" and then resume before July 17th? This is why judgments need to be made with as little emotion as possible.

Remember………it’s not what you make……..it’s what you keep.