Call the Play and Get Out of the Way

A coach’s job is to position his/her team to win.

When the team is not succeeding, the coach needs to reposition players and strategies so they can. Or the coach can swap in fresh, rested players or players who have different skill sets that are better suited for what’s needed now to take over.

What the coach cannot do is play the game for the players. All he can do is call the plays, make the adjustments, and get out of the way. Let the players play.

Managing a book of short options positions is no different.

The goal of selling options is to earn the premium. We want to sell premium and keep as much of it as we can. That’s how we win.

If I have some risk-defined short premium spread positions (like short vertical spreads) where theta decay is no longer working in my favor because the market has moved beyond both my short and protective long strikes, then I need to reposition. This spread is no longer serving my goal of winning. It is now having the opposite effect.

Regardless of where I think the market “might” go, or if I think the “market is wrong,” the only thing that matters is that RIGHT NOW this spread position is no longer serving my goals and it should be repositioned to new strikes and/or a later series so that I can again serve our goal of winning.

Meanwhile, the out-of-the-money spreads that are happily decaying away should be left alone. They are working. They are winning. Don’t overthink it. Let the winners keep winning.

There is a certain stoic detachment one needs when managing short options premiums. We have to deal with what IS, not what we want.

We have to stop creating “stories” about what the price action means, or what it might be threatening to do. It just IS. Nothing more. Whatever happened just happened, now here we are. What needs to be done NOW so that we’re winning NOW?

Who cares what our PnL is? Our PnL is a reflection of the past. We can’t change the past. We can only craft the future by how we act now. One, small, micro-action at a time in service of the big picture.

This is how the best coaches in any sport think. And this is how we have to think when trading a book of short options.