Introduction

So, guys, some really interesting things are happening in the world of options. Just last week, I made a video on the freak trade where an option went down from 1300 rupees to somewhere around 90 rupees and then again went back up. This week, we had a similar incident where a 6-rupee option went to 200 rupees and then again came back down.

Now these two instances are of course case of extreme price movements, but even on a day-to-day basis, what we are observing is that option premiums are jumping up and down like crazy. And all this is causing option sellers to incur huge losses. Now as most of you are aware, the world of options is divided into two parties, option buyers and option sellers, and the dynamics between them are very similar to that between a gambler and a casino, right.

As we know that in the long run, gamblers eventually lose and the casinos eventually win, and they even say that the house always wins. Now, what has happened in the last few years in the world of options, especially after 2020, people have taken this to be a sure shot formula for success, right? So, they think that if I’m doing option selling, this is my ticket for printing money from the stock market.

And to be fair, it worked out very well in 2021 and 2022. However, this year has nothing but a disappointment for option sellers. Why? Well, dirt cheap premiums and heavy intraday volatility these are hurting option sellers and on top of that, these instances of freak trades are making matters much, much worse.

So, this kind of a change in fortune for option sellers reminds me of, Amitabh Bachchan as Vijay Dinanath Chauhan in the iconic movie Agnipath, who said very eloquently, right.

What he’s saying is that wind is blowing very fast, hold on to your cap. Now I’m not demeaning option sellers. Of course not. I myself am an option seller, but what I’m trying to highlight is that the wind is indeed blowing fast. And if the option sellers don’t take cognizance of that, they can be out of the game, right.

Important Points

So let me be very precise about what I’m trying to say.

1. You need to understand that option selling works well in high volatility environment, but becomes disastrous in low VIX conditions, right? So, take a look at where we are right now in terms of VIX, we are at all time low when it comes to VIX. So, if you are using the same strategies, which you used in 2021 or 2022, it’s not going to work.

2. My second recommendation is become Ambidextrous. Ambidextrous basically means that ability to use both hands with equal ease. Options selling for you might be your right hand, but if you can at least develop some kind of a skill in option buying as well, that will definitely help you survive through this phase.

3. Third, and I think probably the most important point that I have to share is that just because you are selling options does not mean that you are a casino, right? So, don’t be under the impression that you have become a casino, because in reality, casinos have lots and lots and lots of capital, right. So, they have some really deep pockets.

So even if they have to give out some jackpots, they’re not going to lose a lot of money. We, the retail traders, on the other hand, have a very limited capital, right? And if we keep losing money at this pace, and the drawdown becomes more than 50%, the game is basically over for us. So, guys, the bottom line here is that the market is changing and we need to be able to adapt as well.

Conclusion

So, what is happening in my experience is that the introduction of daily expiries Monday, Tuesday, Wednesday, Thursday, Friday, right? This kind of everyday kind of expiry is creating abnormal interest in options and almost an unimaginable kind of open interest. So, this kind of a setup can become very dangerous when it comes to options because even a small spike in the underlying can create a huge spike in the options.

So be very, very, very careful. Keep your stop losses in the system, preserve your capital. And I’m sure when the volatility comes back, maybe next year or a year after that life will become much easier.

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