Thread by @muthukishor

#USDINR #Optionselling
Few lessons from last week Fiasco.

1. IV will go from low levels to higher levels increasing premiums suddenly
2. Market is cyclic in nature; What goes up will come down: What goes down will come up

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3. Hold on your losses until expiry; if it continues roll-in-time
4. Adjust your position until the short strangle becomes a short straddle & then all you have to do is to wait for the market to do its job.
5. last & Important - DO NOT P A N I C; Emotional control matters

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These lessons doesn't seem to be a new one for me r U
But the thing is, these lessons went in air, when there was a huge spike in MTM loss & emotions took control of my mind
Tho such ocurence has redcd signfcantly from past, dis incident showd me wher I need to improve myself.
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Such events are called black swan events, which can't be avoided but managed

To do so, i've added few measures to existing system.

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1. No change in exiting style - ie no panic exiting or using SL to exit. Strike exit is thru expiry or rolling in time
2. Adjust the untested side ( leg which is in profit) towards the market, until the strangle becomes straddle. - Use trigger points to initiate adjustments
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3. While adjusting, only a max of 2 differnt stikes of same side should be live.
Top of all, the next action is experimental, which will significantly impact my p&l
4. to have lot size based on IVP.
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Basically option premiums spikes up, when the IV increases from small rank to higher rank.
So losses also increase at the same time.
So If i could sell a smaller qty than regular one during lower IVPs, I can C O N T A I N my risk better...
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So to decide the qty, I'm referring to the IVP itself.
It goes by if,
a. IVP is less than 35, only 35% of capital will be used for trading
b. 35 to 70IVP, then 50% of cap & >70IVP, 60% of cap can be used for trading.

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Right now I use 50% cap for trading & 50% for adjustment/laddering. So I can vouch for 1st 2 scenarios to work fine. I've not tried the 3rd scenario where I increase my position during high IVP. So that will be an experimental one - highly risky.
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Logic behind Higher qty at Higher IVP is that, IV crush will bring down the premiums quickly, so we can cash in good profits.
Honestly, this idea needs a validation - so until that it will be an "excellent" idea only.

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Losses apart,
I'm glad that i'm facing such black swans when my account is small enough & I'm at beginning of this career.
This is helping me to fine-tune my system to trade better.

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btw, this is again a thread to share my own lesons with friends. You can take a leaf or two from it.
But handle your money with care & at your own risk

Give me ur ideas & thoughts if my above measures would help the system trade better r needs improvmnt...

Nandri Vanakkam
#kgmk