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+200  •   The Intelligent Option Investor
+After you enter a position and some time passes, it becomes clearer 
+what valuation scenario the company is tending toward. In some cases, 
+a bit of information will come out that is critical to your valuation of the 
+company on which other market participants may not be focused. Obvi-
+ously, if a bit of information comes out that has a big, positive or negative 
+impact on your assessment of the company’s value, you should adjust your 
+position size accordingly. If you believe the impact is positive, it makes 
+sense to build to a position by increasing your shares owned and/or by 
+adding “spice” to that meal by adjusting your target leverage level. If the 
+impact is negative, it makes sense to start by reducing leverage (or you 
+can think of it as increasing the proportion of cash supporting a particular 
+position), even if this reduction means realizing a loss. If the impact of the 
+news is so negative that the investment is no longer attractive from a risk-
+reward perspective, I believe that it should be closed and the lumps taken 
+sooner rather than later. Considering what we know about prospect theory, 
+this is psychologically a difficult thing to do, but in my experience, waiting 
+to close a position in which you no longer have confidence seldom does 
+you any good.
+Obviously, the risk/reward equation of an investment is also influ-
+enced by a stock’s market price. If the market price starts scraping against 
+the upper edge of your valuation range, again, it is time to reduce leverage 
+and/or close the position.
+If your options are in danger of expiring before a stock has reached 
+your fair value estimate, you may roll your position by selling your option 
+position and using the proceeds to buy another option position at a more 
+distant tenor. At this time, you must again think about your target leverage 
+and adjust the strikes of your options accordingly. If the price of the stock 
+has decreased over the life of the option contract, this will mean that you 
+realize a loss, which is not an easy thing to do psychologically, but consid-
+ering the limitations imposed by time for all option investments, this is an 
+unavoidable situation in this case.
+One of the reasons I dislike investing in non-LEAPS call options is 
+that rolling means that not only do we have to pay another set of bro-
+ker and exchange fees, but we also must pay both sides of the bid-ask 
+spread. Keeping in mind how wide the bid-ask spread can be with options 
+and what an enormous drag this can be on returns, you should carefully