A thread on Options based on my understanding...
1. Chose the Options your sell wisely. OTM's witness theta decay very fast and will be forgiving in slight adverse move. ITM/ATM are for momentum play and best to trade with proper SL and position sizing.
1. Chose the Options your sell wisely. OTM's witness theta decay very fast and will be forgiving in slight adverse move. ITM/ATM are for momentum play and best to trade with proper SL and position sizing.
If you intend to trade options like stock with technical analysis with SL, probabilities and position sizing, its best to trade in ITM/ATM options.
If your intention is to benefit from massive theta decay fast with slight safety from spikes then OTM options with hedge are best.
If your intention is to benefit from massive theta decay fast with slight safety from spikes then OTM options with hedge are best.
2. Never Leave Positions Unattended.
As a rule of thumb, always have an eye on your positions in case you need to cut them. Specifically for people with a day job. Many times I have seen people taking position with hedge (OTM) going back to job with a thinking...
As a rule of thumb, always have an eye on your positions in case you need to cut them. Specifically for people with a day job. Many times I have seen people taking position with hedge (OTM) going back to job with a thinking...
...that position will expire 0 in their favor. These are the trades which can cause disaster in trading account. If you cannot actively monitor, don't carry a trade.
3. Small candle at end of day does not mean a smooth trading session.
Remember Intraday chart of 7 Jun 2022?
3. Small candle at end of day does not mean a smooth trading session.
Remember Intraday chart of 7 Jun 2022?
What seems easy on end of day chart, isnt so easy when trading live.
4. Reason for big red loss is not technical analysis gone wrong but
--- Wrong Position Size
--- Wrong Selection of Strategy
--- Not Cutting it at nascent stage. -10k can grow to -50k pretty easily.
4. Reason for big red loss is not technical analysis gone wrong but
--- Wrong Position Size
--- Wrong Selection of Strategy
--- Not Cutting it at nascent stage. -10k can grow to -50k pretty easily.
5. Traders often underestimate the power of market hitting their upper or lower breakeven levels. Learn to expect unexpected & prepare accordingly. Hence the emphasis on position sizing. Even if you are caught in the wrong, account will not be deep red with right position size.
6. Never utilize 100% of margin on 1 trade. Deploy cash in tranches on different trades.
Think cash as your soldiers. Every day you send them for battle. Some will die. Some will win and bring back more soldiers. Don't send them to single battle to die.
Think cash as your soldiers. Every day you send them for battle. Some will die. Some will win and bring back more soldiers. Don't send them to single battle to die.
7. To manage 20% of position size, don't risk 80% of capital. Manage an Option Position to an extent. Using 20% to manage 20% is okay. Rest 60% can be used to take more profitable trades.
There is always a single losing trade. I close losing trade at 0.75% of margin.
There is always a single losing trade. I close losing trade at 0.75% of margin.
8. In the name of trade management, avoid blind counter option selling. Even option management requires a plan. Don't adjust Calendars with Iron Flies and Iron Flies with Calendar Spreads. Adjust Calendars with Calendars. Simple spread with spreads. Know when to exit.
9. Always keep risk or stoploss less than your average profit to make sure you are profitable in the long run.
If your target is 2%, keep stoploss at less than 1.5%. Lesser is better.
If you have folio of trades then stoploss at cumm folio or the losing trade.
If your target is 2%, keep stoploss at less than 1.5%. Lesser is better.
If you have folio of trades then stoploss at cumm folio or the losing trade.
10. I find the use of Ratio Calendars best when the initial move is immediately in your favor in a day or two. If initial position is not beneficial then its best to close position.
If done rightly then even Calendars can be made free.
If done rightly then even Calendars can be made free.
Last but most important: Take your first trade of day, week or month with extreme caution and analysis with open mindset to close it immediately if it goes against you. Nothing can condition your psychology best then the cushion of profit to take next trade.
A wrong trade is just not a monetary loss but also an emotional and mental loss which can have affect on your psych. Damaged psych does not result in good trading.
That's a wrap!
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1. Follow me @rohit_katwal for more of these
2. RT the tweet below to share this thread with your audience
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