Option selling without any adjustments

I have been backtesting and paper trading some simple options selling strategies. These don’t require any adjustments. I simply exit when my fixed SL or Target is hit.

Can option selling be profitable in the long term this way without any adjustments?? Many of the guys on Twitter (who say they have earned fortunes by selling options) are relying on adjustments.

Am thinking of putting actual money into this. I don’t have much money either can only afford to sell a strangle of 1 lot at max.

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No without adjustment not possible to be profitable in the long run (here I am talking about option selling specifically). Don’t you think if it was so easy to just create a strategy and sit tight, everybody would be earning the money.
Market is dynamic in nature and you’ll have to adjust accordingly.

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So you seem to have done the work, you see an edge. You don’t need external validation. Paper trade and make sure live trades match backtest. Make sure costs are accounted for - slippage too. Assume live performance will be decently worse that backtest. Then trade with money that you can afford to lose and take reasonable risks. Make sure you have money to manage margin requirements after extended drawdowns. Exponential returns are only in twitter screenshots. You need capital to trade, if you don’t have capital then earn it elsewhere.

I don’t trade options, but yes its probably possible to trade with stops and targets - and why should it not be ? Nifty options should be liquid enough. 0920 straddle is quite popular ( google it) and trades with stops. We have bot providers who have publicly released a number of systems and few of them trade options like you said. I cant vouch for them, and you should not trust blindly either - do your own work and ignore others/twitter etc. Bad periods/drawdowns are integral to trading so large part of the challenge of trading is psychological.

Simple things work. Its not easy to trade them day after day consistently and we always have uncertainty. performance goes up and down, things can stop working and you don’t know if and when they might start working again ( usually it does) - but simple things do work in probabilistic way - law of large numbers applies. And once you have a working system - diversify and trade more systems to reduce uncertainty.

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Be careful while placing stops with far otm. Prices could move wildly and you can get stopped out even though you were not meant to exit as per the strategy.

With option pricing theoretical price is often not the actual price. Money can move option prices wherever it wants.

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True that is why I have been paper trading on the live market to check how my strategy is working in live markets. I am using streak their paper trading is taking live market levels only and I am getting satisfying results so I am looking to implement live.

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What you are saying is true. But again I get scared by hearing things like this-

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Brother, the above statement is regarding option selling strategies like credit spreads, Iron Condors, Butterflies, Calendars etc.
If by option selling strategies you mean some indicator based strategies then you can ignore my answer.

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Ohhh Got it. Thanks man :+1:

As i said uncertainty is part of it. If you are getting scared by this - you will get even more scared when things are not working well and you don’t know if/when they will get better . Psych issues are overrated but also real. Extended losing period feels much worse vs positive emotions from good periods. We tend to over emphasize recent past.

Failure is part of trading too. Things don’t work, you do what you can and fix things. Execution might need tweaks, system might need tweaks, perhaps find new systems etc etc. Best to try to find an edge that is simple and uses the basic behavior of the market tested over say a decade. These tend to be somewhat stable.

Don’t trade with money that you cannot afford to lose initially. Once you have edge/experience, make sure you don’t risk too much so that even if say max DD gets doubled it does not take you out and you can preserve capital to trade again with same/different system. Having another source of income will probably help manage emotions. Or have enough capital as buffer to deal with the ups and downs. Diversification reduces risk very well - much more than you might expect. Good luck.

I think don’t do naked selling always prefer to take a hedge, and create spreads, this way you are protected from huge losses or wiping out entire capital in one trade check this-

as you are using streak this will help.

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Before you even consider whether you require adjustments or not for this strategy of yours, ask yourself if it is worth your time and effort to risk that capital.

How much money do you expect to make out of this strategy with one lot?

On a pro desk, a good trader makes about 30% annually if he/she is having a really good streak. For the sake of simplicity I am taking round figures here. So, let’s say, you stake 1 L in capital and let’s say you trade like the best players in the game for the entire year. You make 30k in the end. That’s Rs. 2500 per month.

And this is without taking into consideration all sorts of aspects of your strategy

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earlier I used to believe in things like this.

what changed?

my understanding of market

Now what do you believe?

that if someone trades for 30% anually, why don’t he invest
it’ll save time & energy.

it’s totally subjective & barely worth for a trader’s effrots

How much do you think a trader should expect?

anythig above 4-5% a month

as risk & reward goes parallel to each other,
capital preservation while bearing viable gains would be preferred by trader with large corpus against someone with smaller cap & risky approach.

4 to 5 percent per month is 60percent plus per annum. Thats a lot of risk at least for me.
At this rate even if you start with an amount of 10lakhs, in 30 years you would be one of the richest persons of our country.

sure, why not!

only if one has balls big enough to deploy whole capital & see drawdowns of millions if not billions.