• Create BookmarkCreate Bookmark
  • Create Note or TagCreate Note or Tag
  • PrintPrint
Share this Page URL
Help

Chapter 4. Managing Profits and Losses > Managing the Inertia Problem

Managing the Inertia Problem

For some conservative investors, the problem is not mastering the complexities of option trading; in fact, some may be quite comfortable with options and the various strategic possibilities they offer. A greater problem may be inertia.

When market prices move quickly, the natural tendency is to close out positions to cut further losses, or to become overcautious and fail to act when the timing is right. The panic reaction is untypical of conservative investors. You know the stock is a viable long-term hold, so you are unlikely to panic if prices drop out. You know that this temporary situation will turn around at some point in the future. Inertia, on the other hand, is more difficult to deal with. When prices fall unexpectedly, taking decisive action is a struggle between two forces: the desire to make smart, well-timed moves and the fear that the entire market and its conditions have changed and a more defensive posture is justified. In hindsight, everyone knows that inertia is just another word for lost opportunity; but it is very difficult to act when the opportunity exists.


PREVIEW

                                                                          

Not a subscriber?

Start A Free Trial


  
  • Creative Edge
  • Create BookmarkCreate Bookmark
  • Create Note or TagCreate Note or Tag
  • PrintPrint