Reducing Heartburn

August 20, 2020

When all your options have been exhausted, make more options. There’s always something else you can do to keep going.

When the obvious solutions have failed, get more creative. You owe it to yourself, to the situation, to life, to find a way to make it work.

If what has always worked no longer works, experiment, adjust, adapt, learn. Get yourself curious enough and persistent enough to figure out what will get the job done.

~ Ralph Marsten

One of the things I often repeat is: Options give me options.

And it’s true. An options trader has a number of different ways to express a bullish bet, a bearish bet, a neutral bet, etc. Depending on your point of view, this is either liberating or terrifying.

Whenever I go to a Chinese restaurant and I’m handed a menu with 34 pages of dishes to choose from — I get paralyzed. Most of the time I have no idea what 85% of the items are and having to choose the one perfect dish becomes an exercise in futility. Whenever I get a dish that I like (thankfully, often) it’s really just luck that I didn’t choose a “bad” option.

This is an example where having options is actually a bad thing.

But in the markets, having options is a good thing.

My challenge as a human trader — when agonizing and sweating through the latest drawdown —  is to remember that I always have options, and to recognize the opportunities that these options present.

Is my trade running out of time? Consider rolling it to the next month.

Is my trade getting hurt by theta? Consider converting into a spread by adding some OTM short calls to it.

Is my trade getting hurt by a directional move? Trim some delta exposure.

Is my P/L too volatile? Consider reducing my gamma exposure.

The common thread amongst all these options is, just because a trade or a position isn’t working, I don’t have to give up. There are things I can do to stay with my current thesis, while taking action to reduce or eliminate whatever it is that is causing me heartburn.

Of course, just exiting a trade is always an option and sometimes that is the best option. But either way, it’s good having more than just that one option.