With social media full of rants by loss-making options traders, Zerodha co-founder Nithin Kamath on Wednesday said sudden spikes in option prices on expiry days is catching traders off guard in the last one year.
“One way to ensure you don't lose money due to volatility is to trade fully hedged options strategies, such as spreads,” Kamath wrote in a social media post, adding that traders also need to ensure strategies to manage risk, size positions appropriately etc.
“I've said it earlier, trading actively is the toughest way to make easy money in life. The trick to being a successful trader is to survive the bad days,” the billionaire startup CEO said.
Tweet: https://twitter.com/Nithin0dha/status/1783072566157992005?t=rLBgyXq_jRBsj_5A8GDIyQ&s=08
Kamath also shared a post by Zerodha-owned options trading platform Sensibull to help traders understand how spreads help. Here’s its summary:
Limited losses
A key advantage of these strategies is the limitation of losses. Regardless of market fluctuations or extreme events, such as circuit breakers or geopolitical turmoil, losses are capped at a predetermined amount. This assurance shields traders from the anxiety of huge swings or catastrophic financial setbacks.
No need for stop-loss
Moreover, spreads eliminate the need for stop-loss orders, sparing traders from concerns about predatory algorithms or execution pitfalls during volatile market conditions. With maximum losses predefined, traders can trade without the stress of managing stop-loss orders.
Stable P&L
Unlike directional option trades, where P&L fluctuates with every tick of the underlying asset, spreads offer a peaceful trading experience with minimal P&L volatility. This stability allows traders to check their P&L infrequently, avoiding the addictive habit of constant monitoring.
No worries of Greeks
Furthermore, spreads mitigate the complexities associated with option Greeks like Delta, Gamma, Vega, and Theta. With lower sensitivity to these factors, traders can trade without worrying about fluctuations in implied volatility or time decay.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
“One way to ensure you don't lose money due to volatility is to trade fully hedged options strategies, such as spreads,” Kamath wrote in a social media post, adding that traders also need to ensure strategies to manage risk, size positions appropriately etc.
“I've said it earlier, trading actively is the toughest way to make easy money in life. The trick to being a successful trader is to survive the bad days,” the billionaire startup CEO said.
Tweet: https://twitter.com/Nithin0dha/status/1783072566157992005?t=rLBgyXq_jRBsj_5A8GDIyQ&s=08
Kamath also shared a post by Zerodha-owned options trading platform Sensibull to help traders understand how spreads help. Here’s its summary:
Limited losses
A key advantage of these strategies is the limitation of losses. Regardless of market fluctuations or extreme events, such as circuit breakers or geopolitical turmoil, losses are capped at a predetermined amount. This assurance shields traders from the anxiety of huge swings or catastrophic financial setbacks.
No need for stop-loss
Moreover, spreads eliminate the need for stop-loss orders, sparing traders from concerns about predatory algorithms or execution pitfalls during volatile market conditions. With maximum losses predefined, traders can trade without the stress of managing stop-loss orders.
Stable P&L
Unlike directional option trades, where P&L fluctuates with every tick of the underlying asset, spreads offer a peaceful trading experience with minimal P&L volatility. This stability allows traders to check their P&L infrequently, avoiding the addictive habit of constant monitoring.
No worries of Greeks
Furthermore, spreads mitigate the complexities associated with option Greeks like Delta, Gamma, Vega, and Theta. With lower sensitivity to these factors, traders can trade without worrying about fluctuations in implied volatility or time decay.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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