Jon Najarian: How to secure profits and cut losses

Jon Najarian has been trading for decades. He was there when tech stocks crashed in 2000. He traded through the housing crisis and the great recession — and more recently, the Covid-19 pandemic. 

Simply put, he’s traded through the biggest ups and downs in market history, and not only is he surviving — he’s thriving. 

How does he do it? 

He employs this simple strategy for taking profit, and cutting losses. 

“If I pay a dollar for an option, and it falls to 50 cents, I’m out. In other words, I’ll take a 50% drawdown for an option trade. […] If the option doubles (same example) and goes from a dollar to two dollars, I will take 50% off the table immediately.” -Jon Najarian

That’s it. That’s all there is to it. You might add some nuance to that by rolling your option to one that is 50% the value of your previous position, or you might opt to just trim 50% of the contracts. 

However you choose to do it, what’s important is that you lock-in profits when you have them, and cut losses quickly. That’s how Jon Najarian has outlasted so many other traders, and it’s how you can become a better, smarter trader.

To listen to the rest of what Jon had to say, check out our recent strategy session on how we trade unusual option activity.

As a bonus, check out this clip from the same session, where Chief Options Strategy Ryan Mastro breaks down how a recent UOA trade predicted Elon Musk’s Twitter Takeover. 

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