Our indicators are giving bearish readings which was born out by Tuesday's action when the Market was up over 100 points only top close down 11. 

In two words -- "Not Good" for the bulls.

For option players like us, the best course of action continues to be to try to buy puts on rallies. 

While the primary trend might be bearish, stocks have been very volatile to both the upside and downside, so simply owning put options isn't enough. You must still strive to pay the lowest price that you can to buy the puts.

Once again last week Complete Option Report subscribers took a trip to the bank with more profits when four trades, expired Friday for full 100% profits.

As a regular reader of this Report you may wonder how we profit while most of the market continues to struggle.

How We Profit

We profit almost weekly by finding undervalued options. 

That is the cornerstone of making profits when you speculate with options. 

But just as important as selecting the right option to buy and paying the right price is knowing when and how to take profits.

Many option buyers lose not because they take the wrong positions, but because they fail to take profits properly.

To make the biggest potential profit your first objective is to protect profits, and your second objective is to hit home runs. Most important, when your option begins to profit you must be ready to act.

Ken's newsletter The Complete Option Report gives you specific time tested entry and exit points so you can trade with scientific disciple. Click here to try the twice weekly report...

How to Sell

I have found that the best way to do this is to know exactly what you will do with a position when the option hits a specific price. Deciding this in advance, and sticking to your decision when the time comes, removes a lot of emotion from your decision making. When you buy an option, you should decide in advance what your target price for the option will be. We always give you our target prices when we recommend options to buy in The Complete Option Report.

If the option hits the target price, sell half of your position. This takes your original money off the table. Capital preservation is paramount when you speculate with options.

Then let the rest of your position ride for possible future gains, using a 5% trailing stop on the underlying stock. A trailing stop can be a "mental" stop, though more and more brokerages are allowing this to be done automatically. The trailing stop adjusts when the stock moves in your direction, and stays the same when the stock moves against you.

For example, when a Halliburton LEAP call option we recommended hit its target price, we advised subscribers to sell half their position. Then if the stock kept rising, they would hold the option and adjust the trailing stop higher so that it would still be 5% under the current stock price. But if the stock fell, they would keep the trailing stop the same.

The process is reversed for a put option. If the stock continues to fall, keep lowering the trailing stop. But if the stock rises, keep the trailing stop the same.

Another key for taking profits -- if your option is in the money (goes past the strike price) and enters its last week before expiration, close the entire position and take profits. 

Don't wait for it to expire.

Taking half of your profits at the target price serves two beneficial purposes. One, it forces you to take some money off the table, protecting you from a sudden reversal in the stock price. And two, it leaves money on the table for possible future gains. 

As I said above The Complete Option Portfolio is currently biased with puts. I suggest you take advantage of this volatility and try The Complete Option Report.

Protecting profits and preserving capital is critical when you buy options.

As important as taking profits is cutting losses. Losses are part of the game, and if you don't take them and move on you will soon be out of the game.

There are two ways to cut losses. One is by setting a stop loss on the underlying stock. If the stock closes below (for a call option) or above (for a put option) its stop loss, close the option position the next day. Another way to cut losses is to use the option price. If an option falls in value by 50% after you buy it, sell it and close your position.

The Bottom Line

We can't stress this enough -- if you do not cut your losses, you will not last as an options player.

That, in a nutshell, is how we maximize profits with options. It is a system that takes profits when they are available, and cuts losses when necessary. 

Most important, it removes emotions from your decision making. Follow this system and you'll have your best shot at real success when you buy options for speculation.