Whenever vol is on the rise, my go to strategy is always RS. Apart from Jan, Feb & Jul this year when i traded in straddle, 2020 has all been about RS. It's the flexibility of the strategy to trade in both direction & non-direction which i like.(1/n)
RS is buying one strike with high delta & selling more than 1 lot of lesser delta. Since i do weeklies i prefer buying ATM & selling OTMs on Fri, Mon, Tues as the premiums in OTM options are high. For Wed, Thus i buy ITM & sell ATMs.(2/n)
To make up my decision of which leg (cal or put) to initiate, i look in the option chain on which side the OTMs are not spiking. That's likely the side whose OTMs will melt faster or not increase even if market moves towards them.(3/n)
If your willing to adjust, then even if the view goes wrong you can buy or sell extra qty of sold option to stay +ve. For example if you have initiated a PUT RS & there is a volatile downmove, then you can keep buying extra sold qty & convert the RS into debit spread.(4/n)
If there is a volatile upmove, u can sell extra qty to receive more premium, which will ultimately decay. If market doesn't go anywhere, then also sold OTMs will decay faster. So it's kind of a win win situation, if ur willing to adjust & look carefully in the option chain.(5/n)
Many times during high IVs when there is good vol crush, both the strikes can give profit. So if you have a Put spread & market opens 70pts down, your ATM put will increase & OTM put will decrease. It's hard to believe that puts can fall when nifty falls but it happens.(6/n)
Deciding what ratio is subjective. I personally initiate a delta neutral RS which has an inherent debit. If one doesn't know greeks, then can match the premiums of bought & sold options accordingly, preferably some debit because credit can increase the risk during vol spike.(7/n)
Ideally best days for ratios are Tue, Wed & Thus. It's because many a times the OTMs can behave irrationally in the starting of the week, as the time left for expiry is high. Overnight positions can give good profits due to vol crush, but intraday can be tricky. (8/n)
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In 1997 my family travelled to Chicago to attend a trader's conference.
"Samurai Trader's Symposium".
It was hosted by the author of the book "Zen in the Markets: Confessions of a Samurai Trader" by the late Edward Allen Toppel.
The book is mostly about Trading Psychology, which had a big impact on my dad's trading when he first started out. The Author, Eddie as we called him, was a top trader on the Chicago exchange at the time. He became a close friend to our family.
He was amazed at how his book could have such a profound impact on someone. But this was a time when knowledge wasn't in abundance like today. He himself found it tough at times to follow his own rules, but this is because markets can be tough at times & our ego gets in the way.
Hello! This is a master thread that contains my past threads on options, trading psychology and my own experiences in the market. I hope they provide you with valuable and practical insights.
10 mistakes in my 14 years of trading as an option seller
How to become a successful trader
(for beginners) 🧵
1. We need adequate funds to begin our trading journey. If you don't have enough funds, my suggestion would be to borrow money from relatives or close friends. In the long run you will realise that your relationship will only grow stronger.
2. To understand what trading is all about, it is necessary to learn from experts. There are many successful traders, who have almost stopped trading & have made it their life mission to teach beginners through workshops & telegram channels. Learn from them.
10 things that have helped me stay profitable as a full-time trader for nearly two decades 🧵
1) Following the market. Market speaks to us in one language: Price. Be it volatility or direction, the ideology has always been simple: to follow the price as closely as possible. Whenever I have astrayed from the objectivity of price, have been severely punished by the market.
2) Exiting losers & accepting mistakes. This is something basic & every trader knows it by heart. But to apply it is still a challenge & our basic human psychology interferes with it. Being a full-time trader helps in this aspect, as we can't really afford to lose big.
The most tough environment for option sellers is the transition between high to low Vix. One gets well accustomed in handling the regular IV spikes & the high theta decay that follows afterwards.
During low Vix the spikes are less frequent & less intense. With less premiums one is always afraid of gamma moves, which in the recent past 2 years have been plenty.