The Art of Selling Options: A UK Trader Journey to Malaysia

As a trader, it's not uncommon to feel isolated, stuck in a room with a screen, making decisions that can make or break your portfolio. For one UK trader jounrey, this feeling of loneliness led him to reach out to the Cambridge University Quant trading society, where he shared his trading strategy with fellow traders and academics. In this article, we'll explore his trader journey, his approach to trading, and how he eventually moved his family to Malaysia.

The Strategy: Selling Options

The trader's strategy revolves around selling options, specifically put and call options, to make money from the risk premium. He assumes that the market is unpredictable and that volatility is the only opportunity to make money. By selling options, he's essentially acting as an insurance company, collecting premiums from buyers who are willing to take on risk.

The strategy is based on two assumptions:

1. We know nothing: The market is unpredictable, and it's impossible to guess future movements.

2. Volatility is the only opportunity: By selling options, the trader is looking to capitalize on the risk premium, which is the difference between implied volatility (the market's expectation of future volatility) and realized volatility (the actual volatility).

The Presentation at Cambridge University

The trader presented his strategy to the Cambridge University Quant trading society, where he shared his approach with fellow traders and academics. He discussed the importance of managing risk, stress-testing his portfolio, and continually adjusting his trades to ensure that his risk of ruin is as close to zero as possible.

The presentation included a detailed explanation of his strategy, including:

• Delta-neutral positioning: By selling both put and call options, he creates a delta-neutral position, which means that his portfolio is not directional.

• Theta as a ratio of net liquidity: He aims to use less than 50% of his net liquidity in his portfolio.

• Risk management: He continually adjusts his trades, removing old trades once volatility has come down and adding new trades with higher implied volatility.

The Move to Malaysia

After sharing his strategy with the Cambridge University Quant trading society, the trader began to explore new opportunities. He eventually decided to move his family to Malaysia, where he could continue to trade and enjoy a more favorable lifestyle.

The trader's decision to move to Malaysia was likely influenced by the country's favorable tax environment, lower cost of living, and high standard of living. Malaysia offers a range of benefits for expats, including a relatively low cost of living, a warm climate, and a diverse culture.

The Benefits of Selling Options

The trader's approach to selling options offers several benefits, including:

• Consistent income: By selling options, the trader can generate a consistent income stream, similar to an insurance company collecting premiums.

• Limited risk: By managing his risk of ruin, the trader can limit his potential losses and ensure that his portfolio is resilient to market shocks.

• Flexibility: The trader can adjust his trades continually, allowing him to respond to changing market conditions.

Challenges and Mind Management

While the strategy offers several benefits, it's not without its challenges. The trader notes that it takes "mind management" to stick to the strategy, particularly during times of market stress. When the market is crashing, it's tempting to run away or wait for confirmation, but the trader's approach requires him to load up on trades during these times.

Conclusion

The UK trader's journey to Malaysia is a testament to the flexibility and opportunities that trading offers. By sharing his strategy with the Cambridge University Quant trading society, he was able to refine his approach and connect with like-minded traders.

His approach to selling options offers a unique perspective on trading, one that emphasizes the importance of managing risk and capitalizing on volatility. While it's not a strategy for everyone, it's clear that the trader has found a approach that works for him, and he's able to enjoy a fulfilling lifestyle in Malaysia.

Lessons Learned

There are several lessons that can be learned from the trader's journey:

• The importance of risk management: Managing risk is crucial to any trading strategy, and the trader's approach to selling options is no exception.

• The need for flexibility: The trader's ability to adjust his trades continually allows him to respond to changing market conditions.

• The benefits of community: By sharing his strategy with the Cambridge University Quant trading society, the trader was able to connect with like-minded traders and refine his approach.

Final Thoughts

The trader's story is a fascinating insight into the world of trading and the opportunities that exist for those who are willing to take on risk and adapt to changing market conditions. His move to Malaysia is a testament to the flexibility and lifestyle that trading can offer, and his approach to selling options provides a unique perspective on trading.

Whether you're a seasoned trader or just starting out, there are lessons to be learned from the trader's journey. By emphasizing the importance of risk management, flexibility, and community, traders can develop a more nuanced understanding of the markets and improve their chances of success.