#10 – Maintain a Strict Stock/Option Surveillance Program
Watch your stock and option prices like a hawk during the periods of time that you are holding these naked options positions. The professional naked options writer will keep a close eye on the price action of the underlying stock, and will cover a position, bail out of a position, or buy back a position if there is a change in the trend of the underlying stock. He will also take profits early when the option shrinks in value quickly because of an advantageous stock price move. Or he may take action when the options become extremely undervalued, according to the stock price. The closer you carry out a surveillance program, the better your profits will be, and the smaller your losses.
This surveillance program should also contain a continuous writing feature, which is best described as a method of reinvesting funds into new naked options writing positions as profits are taken. This process is similar to compounding interest in your bank account, except the return is much better! By continually reinvesting in new positions and actively taking profits when they develop, your portfolio will grow at a much faster rate than is possible if you maintain a static program of waiting until the options expire.