Option Trader Resolutions for 2024

Option Greeks are not as Greek as it seems. They are plain and simple relationships.

Shubham Agarwal

In the last few days of 2023, while we celebrate the achievements of the year gone by, we also set goals and guidelines for the New Year. Most of the learnings of 2023 could give me 4 such guiding resolutions for the year 2024. The upcoming year is extra special as the Union Election is about to take place. Let us go through important resolutions that could help us get through 2024 with flying colours.

#1: Respect Volatility of Event

Options trading is done by the majority of us by keeping the underlying price in mind or to a certain extent time of the trade in mind. With a new year bringing in a mega event especially, the crucial element of Volatility indicated by Options needs to be part of the consideration of trades.

Remember, Rise in Expected Volatility = Rise in Premium and vice-versa.

This means that ahead of the event Options premiums will rise and after the event they will fall.

Resolve to

1.1 Not Sell Options before the event

1.2 Be Willing and able to lose full Premium for Option Buy (it’s a Hit Out or Get Out in the event). Zero or multiple times premium could be the outcome.

#2: Allocate Treading Capital for Both Direction + Non-Direction

Typically, we have a lot of Option writers making decent money after the introduction of multiple weekly expiries. However, a lesson learnt from 2023 is Nifty posted returns of over 20% alone. Concentrate too much on the Option Selling (Non-Direction) and the rally is missed.

At all times some of the trades should be aimed at Net Sell Options (Option Writing) and some should be aimed at catching the directional move (Net Buy Options). This will not only give us the best of both worlds but also a balance between consolidating and trending markets. While Net Buy Options trades take care of Up and down, Net Sell Options capitalize on consolidation.

#3: Trade Beyond Indices

The influx of liquidity + weekly expiries have attracted a lot of Options Traders towards the Indices. With relatively low volatility they are the best place to start trading. However, we need to resolve this in 2024 to graduate higher.

Indices are diversified and that is why less volatile and thereby easy to trade. But the ease comes with a cost. Nifty just went up by 20%+ but some of the stocks have gone up more than 100%. Serious money can be made into stocks. Stick to liquid options but trade stock Options especially for directional (Net Buy Options) trades.

#4: Learn from Greeks and Act

This one is a bit tricky but while we just look at the underlying stock/index price, the impact of the strike price that we are trading + Time + Volatility (indicated by Options) keeps affecting our profitability.

Option Greeks are not as Greek as it seems. They are plain and simple relationships. Just read, observe and then act not only based on price movement but also based on the Passage of Time and changes in Volatility levels.