How Sudden Spikes FORCE Option Traders to EXIT Trading | Big Bull Series Ep-77

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Published on November 9, 2024 5:36:19 AM ● Video Link: https://www.youtube.com/watch?v=fzPx5jL5bc0

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Guards (2016)

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If you're an options trader in today’s fast-paced, highly volatile markets, you’ve probably felt the impact of sudden spikes, regulatory shifts, and the constant need to adjust your strategies.

In this podcast, we sit down with Vikas aka Arcadian Trader, an experienced options seller who has weathered the ups and downs of the market through calculated shifts in his trading approach.

We delve into his journey of adapting to new SEBI regulations, evolving his strategy, and tackling the psychological challenges that come with making drastic changes to keep pace with the market.

In our conversation with Vikas, he shares his perspective on these regulations and explains how he transitioned from selling In-The-Money (ITM) options to Deep Out-of-the-Money (OTM) options and eventually found his way back to his original strategies.

Market Spikes – A Test of Resilience and Adaptability

Over the past couple of years, the markets have seen unprecedented volatility spikes that caught even seasoned traders off guard.

Vikas recounts the psychological toll these spikes took on his trading journey. His strategy initially leaned heavily on selling ITM options for better premiums and perceived safety. But with the sudden market movements, these positions became vulnerable.

In an attempt to adapt, he shifted to selling deep OTMs, a move that provided better safety margins but lower premiums. However, this transition wasn’t smooth. Each strategy shift came with its own set of risks and adjustments, teaching him valuable lessons on balancing safety with profitability.

Psychological Battles – The Invisible Force in Trading

For any trader, especially those in options, the psychological element is often the deciding factor between success and failure. The constant adjustments, coupled with the high stakes of options trading, can weigh heavily on a trader’s mindset.

In this podcast, Vikas opens up about the psychological hurdles he faced during his strategy shifts.

This psychological journey is crucial for options traders to understand. Vikas points out that each strategy has its psychological demands:

ITM options require traders to remain resilient in the face of potential losses because of the higher premiums and closer strike prices. You’re more likely to be in the money but also closer to your stop loss.

Deep OTM options, on the other hand, seem safer but often bring with them the temptation to over-leverage because of the lower premium. This introduces a new challenge: managing multiple positions while keeping a clear head during market spikes.

The Importance of Strategy Resilience

One of the major takeaways from this podcast is the importance of resilience in an options trading strategy. When volatility spikes and SEBI regulations changed the rules, Vikas had to overhaul his approach multiple times. However, he emphasizes that the goal shouldn’t be just to survive these changes, but to learn and adapt to create a more resilient strategy.

This adaptability, however, comes with its own set of technical challenges. In options trading, factors like strike price selection, premium decay, and implied volatility (IV) play a huge role in determining a strategy’s success.

Vikas shares insights into how he balances these elements when shifting between ITM and OTM options:

Strike Price Selection: Picking the right strike price can make or break a trade, especially in volatile markets. Vikas explains his criteria for choosing a strike price that aligns with his risk tolerance and premium expectations.

Premium Decay and IV: In the world of options selling, premium decay is both an advantage and a risk. When transitioning strategies, understanding how premium decay works across ITM and OTM options is essential. Vikas talks about how he manages this decay to maximize returns while mitigating risks.

Watch this episode to understand the mindset required to thrive as an options trader in today’s markets.

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0:00 - Highlights
0:37 - Introduction
1:13 - Change from ITM to OTM Strategy
4:50 - Impact on Focus in Trades
6:17 - Back to ITMs from OTM
9:02 - Stop Loss & Trigger Price
12:16 - Impact of Spikes for Options Traders
15:59 - Does Ego in Mindset Impact Profits?
19:36 - Trading till when?
23:29 - Beyond Money in Trading