#11 – Set a Bailout Point and Use It
Yes, you’ve heard this one before, but I wanted to stress that a bailout point is the most important safeguard when writing naked options. Your bailout point is the price at which you will always, regardless of the circumstances, buy back your position and bail out. Make sure you use one every time! The best way to insure this action is to use a stop-loss order.
I cannot overemphasize the importance of this secret of naked options writing. Fortunes can be made or lost by the manner in which you pull the trigger to take your losses. As the saying goes, “He who hesitates is lost.”