Quote from fbirdien:
Canât believe could get into such a big hole after having 11 month of wining streak
Beginning with a winning streak is the worst possible result. It makes you overconfident.
Think about each trade as if you were a rookie. Don't assume trade will always be profitable.
This is a rough lesson, and I'm sorry it happened. But it will be good for you in the long run.
I get it. You had a big loss and want to overcome it. Good. But don't panic. Use your head.
1.Better Risk management â
Will create a risk model using Black Scholes model. Use this model to simulate the future market scenarios and monitor the risk everyday for the period position is held.
Your broker should supply software that gives you the Greeks. You should not have to do all this yourself.
2.Entry & Exit pointâ
Will incorporate Economic events, fundamentals and TA (even though a rookie at TA). Backtest to determine the optimal exit point for losing positions
Sounds good. But it's not. You already have a full time job.
Professional money managers do all this stuff, and they still cannot outperform the markets. This is overkill and will do you NO GOOD.
Unless you have a PROVEN track record of being able to predict market direction successfully, I suggest your time is wasted on this one.
3.Back testingâ
Back test the strategy on underlying and the option data before entering the position
NO. Back-testing tells you absolutely NOTHING. Option prices are not determined solely by price movement. Implied volatility is THE major factor. How can you back-test to see when people became fearful or overconfident? How can you back-test to know when a major news event will move the markets.
Back-testing option strategies is a time waster. It does you NO GOOD.
4. Be less greedy and more patient -
Cut down the premium collected.
If you mean cut size and trade fewer contracts, that's good.
If you mean 'move farther OTM and sell cheaper options' that's not so good. One, it may make you believe you should sell extra options to make up for 'lost' premium. And that temptation will arise, especially if you start a new streak.
If you are selling naked options, then this idea has merit.
If you are selling OTM spreads, then I warn you this is not a cure-all. Maximum loss increases, even though probability of loss decreases.
Be very careful with this one.
5.Never chase the market-
If market is moving against me , admit that I am wrong and move on.â I can believe it went xyz % against me .. this is so not possible fundamentally ⦠tomorrow it will move in my favor .. will make the adjustment/exit tomorrow..â so typical
It takes discipline to manage risk, but if you do not manage risk well, you will NOT survive. That is the number one thing to take out of all this.
You already see how well your methods can work (unless you were just selling naked puts in a bull market. If that's what you were doing, then you were just plain lucky).
You must learn to cut losses. And that's a tough thing to do when working full time.
6. Always, always , always cut loses-
Have read this in every other post on ET and in all the popular booksâ¦.MILLION times⦠but still human nature ..easy said/read than done ..need discipline
Don't panic and DO NOT cut every loss immediately. Have some guideline. Perhaps cover when the delta of your short option reaches a certain level. Or the stock reaches a certain point.
Don't forget this. <b> Don't hold through expiration.</b> When the reward becomes too small, close trade and move on.
7.Complacency Check-
Just because it worked for so many months it does not imply that it is going to work for this month.
Very true. But this rule will help ONLY if you truly believe it. If you are saying it to look good, forget it. You must believe.
Don't give up. You recognize some important truths. Just recognize they are true and do not forget them.
