how long to keep a long position

For longer term trades, is there a good rule of thumb as to how long to keep a long position when it's just moving sideways? I want to make trades that gain 3-5% and then exit. But sometimes, I will take a long position and the stock decides to go sideways. If after a week and it doesn't move much, should I get out of the trade and look for something else? Or should I stay with it? Does the probability of the stock going down increase the longer I keep it? Or does it stay at 50/50?

For the long time, experienced traders, do you have any guidelines or advice? Thanks in advance!

My opinion says it depends on how much money you have to play with. I personally have been down 30k in a stock that is a good stock and I am sure that it will start to go back up and it has. I would never bail out of a stock just because it goes sideways. Of course I am dealing with good companies. No penny stocks is a rule that I follow along with no IPOs.

Everyone is going to have their own trading style and risk tolerance. It's important to find what works for you.
My personal take....I hate locking in a loss. But I also hate tying up capital on something that isn't producing. Maybe the question to ask yourself is....Would you buy that stock right now? Because every day you hold it you are basically buying it again. I like to buy into weakness....so maybe if the stock is on its ass it might be a good time to buy. Or can the capital be used on something that has better potential than that one? These are some of the questions that one might use to come to the best decision for them.

The probability of it breaking one way or the other is going to mean different things to different people. Those who trade on technical or fundamental analysis may arrive at some assumption based on historical data. However the options pricing models are forward looking and based on partly on Brownian motion....means they give it a 50/50 shot.

As you gain experience you will find what works for you.

If I woke up tomorrow owning shares of a stock that had me at a loss (assuming I had at least 100 shares and it had options available) I would check the option premium for at the money calls and if there was a fair market and enough premium I would sell and roll them until I got my damn money back. If not I would base my decision on whether or not I thought the stock was a good buy at that level.

You might include the ticker and price you paid....might get more opinions then.

I only buy when the probability that the stock is going to move have increased. Thus, I look for stocks with average intra-day range above 25 cents for small caps and 50 cents for large caps with recent volatility increases or a potential volatility increase due to upcoming events, recent news ( I do NOT buy just because of news though, price action dictates entries) or chart reversal or continuation breakout. I'm not going to be in something sitting sideways. I can come back to it if its not working how I want. Always something moving.

The options are not liquid....means low volume, low open interest resulting in a .15 spread from bid/ask. The market is just too wide for me. Even the stock has a .04 spread right now. And the fact that implied volatility is really low means there just isn't much premium to collect.

You're up right now (.55) so if it were me I would go ahead and take profits and look for better opportunities.

As for the strategy....that is "no" in your case.

Lets say you bought a stock at 30$ and were able to sell the 35$ calls for 1$. The results in your break even point being reduced to 29$ since you collected 1$ in premium. And let's check different scenarios.

1. the stock stays the same.....you wait until you can buy back the calls lets say at 5 days to expiration the calls can be bought back for .05....so you buy them back and sell the next month 35$ strike for another 1$....net/net you have further improved your cost basis by .95 reducing your break even to 28.05$.....and you can keep doing this as long as it makes sense.
2. the stock goes down......you wait for a chance to buy back the calls as cheap as possible and look to sell another call where you get the best premium...further reducing your cost basis.
3. the stock goes up.....waaaaay up.....let's say to 50$. You can either let the calls go to expiration in which case the stock will get called away from the 35 strike resulting in a net profit of 6$. Or you can wait until the last 5-10 days before expiration or whenever there isn't much extrinsic value left and roll them either....to the next month same strike for credit....and sometimes maybe even up for smaller credit. Or just exit all together for whatever profit there is.
4. the stock goes up a bit....say to 34.50$.....I look to roll or exit in the 5-10 day period before expiration. At this point the gamma risk is too high. Means the deltas will change rapidly with any move in the stock. And deltas are the relationship the options price will have with a 1$ move in the underlying. Meaning if the stock moves 1$ and the options have a .30 delta they will move .30..... but if the gamma is high the deltas can quickly go from .30 to .80 or -.30 or whatever....at that point there isn't much left to gain compared to the risk you are taking.
5. the stock goes waaaaay down....say to 20.00$. You may be selling calls for awhile. Hopefully you may have had a chance to roll down in the same month while it was moving....but if it happened all at once....it may take you awhile to get back to even (ask me how I know)...but it can be done....sometimes.


I pick the 10-5 day period before expiration for watching very closely. It is at that time that you can expect most of the extrinsic value to be gone while the next month same strike will still have much more to collect. When there is very little extrinsic value left is one of the times your stock may get called away with early exercise....if it made sense for someone else's position. Which simply results in you receiving max profit from the trade.

Covered calls can be a long road that just grinds out profit slowly over time....no one is getting rich off them much I'm sure.... but that's the trade off.

There is a lot more to it but that's a pretty good start.