#4,314 in Business & money books
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Reddit mentions of Confessions of an Options Strategist: A Winner's Guide to Profitable Option Trading
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Reddit mentions: 1
We found 1 Reddit mentions of Confessions of an Options Strategist: A Winner's Guide to Profitable Option Trading. Here are the top ones.
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> Risk management isn't an add-on to your strategy, it's an integral part of it!
This is a crucial way of thinking. It took me a couple expensive lessons to learn it.
I want to show any new traders how essential it is, and maybe save them the same mistakes. Here's what helped me grasp it.
Imagine a series of totally reasonable trades:
Without any information about risk/cash management, there's no way of knowing how well the trader did.
So, we shall imagine three traders using different cash management strategies to see how each one fares.
The first, Mr. Gambler, will risk his entire capital on each trade. He begins at $30,000, he purchases 100 calls and closes the position to a new balance of $47,500. His next trade of 316 contracts brought him down to $15,900. After the final trade of 53 calls, his balance sits at $26,500.
The second, Mr. Consistent, will risk 15% of his capital on each trade. He begins at $30,000, he purchases 15 calls and closes the position to a new balance of $32,625. His next trade of 32 contracts brought him down to $29,425. After the final trade of 14 calls, his balance sits at $32,225.
The third, Mr. Safe, will risk exactly $4,500 on each trade. He begins at $30,000, he purchases 15 calls and closes the position to a new balance of $32,625. His next trade of 30 contracts brought him down to $29,625. After the final trade of 15 calls, his balance sits at $32,625.
Of course, this anecdote is not my own. It's a very watered down version of an example written by Alexander Gluskin in this book.
I really like this example because it shows a scenario where a trader's forecasting was good, but without any risk management it's not possible to stay profitable. I think a lot of traders focus too much on making sure their entries and exits are perfect, but not enough time on protecting themselves.