Life with options #6

Life with uncertainty...

Photo by Emily Morter on Unsplash

Life with options is a life with uncertainty. You live with the double-edged sword of not knowing the future and the ability to lose money. It is not a concoction of consistent stability. Nevertheless, it does not relegate trading options to being futile, but as I have found, it does test and evaluate your mental capacity to deal with it. It’s a shift into a new paradigm of thinking with regards to sourcing income.

My strategy, in this current turmoil, is to specifically sell options with a week or maximum of two expiry. Personally, I cannot handle the stress of anything further than this as I am looking for the options to expire worthless and price movements have become unpredictable to say the least. For me, a week is manageable and measurable, so I’m sticking to it for the moment.

The burden of being unsure what I am going to make each week or month, is a niggling pest festering in the depths of my mind. I have set a target for around $2000 a month, but it’s not there to be achieved at any costs or stop myself from making more. I use it as a somewhat stationary goal in the adaptable nature of the ultimate goal, accumulating money. It helps me evaluate whether a trade is worthwhile in relation to how much I need from any one trade or how necessary it is to place.

In monetary terms it works out to be about $100-$250 for any one trade I place, with a maximum of 3 contracts and at least an 80% probability of success. The maths says I win roughly 8/10 times so say roughly I make $800 out of every $1000. Arguably the odds are in my favour and there is some certainty. But there is always the two times out of ten – the catch. It has happened on my trades that I take a $2500 chunk loss in one go. Again, the maths unemotionally unravels the seemingly easy winnings to show that everything is not as it seems.

This is where the sticky situation of uncertainty creeps in. It is not as straight forward as saying I will make $500 each week to reach the $2000 target. Each week carries it its own set of unique circumstances that I must scrutinise, which invites the possibility of getting it right or wrong. In other words, inherent uncertainty. I unfortunately fail to possess the fortune telling prophecies of the ancient oracles, making my decisions based more on educated guesses than perceived truths. Despite what “analysts” might pump out, no one can decisively tell the future in the truest sense.

This inevitably inflicts problems into daily life. In terms of my personal cash flow position it’s really tough to know if I’m OK to splash a little bit of money on something I want instead of just spend on what I need. I think it is important to treat yourself as I did recently with a new barbecue, although it can leave a bittersweet taste when you don’t know what’s in the next pay check. It also doesn’t help if you’re in a situation like mine of living off the bare minimum whilst you get back on your feet with an income. My rough guidelines of goals are my attempt to factor in some certainty with my cashflow, but they don’t have any truths to them unless they are actually achieved. It can be quite destabilising if you are not ready for these realities or feelings.

From my all very recent experience it seems this is something that I and everyone trading will have to embrace. For sure you can stack the odds in your favour (as who wouldn’t), but there are the always present looming losses.

Life isn’t certain anyway. We have collectively in society adopted a false narrative of, “life may be complicated but do certain things, certain outcomes will be achieved”. How many examples do we all know where this is not the case? Especially when commenting on trading options. Arguably the only certain thing in life is death, but even this is being called into question with modern advances in science…perhaps too premature to say?

Coming to terms with the uncertain world of options has forced me to honestly assess my own uncertain life and become grateful for what I have now and acknowledge to appreciate it. Interestingly, of all the things humans have created, trading options perhaps exhibit the most intrinsic reflection of how life is lived. Uncertain and unpredictable.