This past Friday, I had a fantastic time stopping by Michael Gayed’s Twitter Space!
Was an incredible, all-encompassing conversation.
In looking back, I feel like there were really some golden nuggets of options info that came about
Let’s dive in & share some key takeaways ☟
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☞ Still want to hear the whole Space?: Twitter Space Recording with Michael Gayed & Imran Lakha
Also – checkout the Lead-Lag Report for more of Michael Gayed’s research.
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In a quote from his dad, Micahel Gayed stated he’s often followed the rule,
“Never play with options.”
Mainly because when you do play with options, you’re generally playing against time.
An opponent that is forever undefeated.
& while this is true, with the right approach, time decay can be managed & kept in check…
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➠ MANAGING TIME WHEN YOU HAVE A VIEW
σ So we’ve pretty well established that time decay exists & is a detriment to your options positions.
But it really kicks in when you get into the short-dated stuff.
So, what do you do?
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𝟏❯ Avoid arrogance in calling the timing
𝟐❯ Trade spreads to limit decay & bleed premium
𝟑❯ Go longer-dated (1 month view = buy 3/6 month expiry)
𝟒❯ Stay aware of time decay at all times
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➠ EXAMPLE
σ $EUR looks a bit toppy & the $USD sold off in the face of this crisis, which is typically the opposite of what you’d expect.
You also have the banking crisis stresses now being felt more in Europe + economic surprises in #EU are falling.
If you believe in the #EURUSD downside, you’d be leaning on #Put spreads.
But buying a 1-month expiration is not the way to play it.
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σ What you do is ask yourself, “how long should I have to wait until this view plays out?”
For the #ECB to pivot, for #CPI to roll over, etc…
Personally, I’d go for some far OTM Sept option expires!
That would be a much better way to carry that bearish Put on #Euro.
It won’t bleed away in the first 1 month, & you can affordably carry it with you for 6 months while you let price play out.
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➠ TWEAK EXPOSURE
σ Once you put the trade on, you are NOT married or stuck to that position.
This is a common misconception with options.
You can adjust & make changes to your position as things develop.
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σ Let’s say I bought some Puts or Put Spreads against the Euro, but the Euro rallies to 1.15…
While the option is not dead, it’s far from being ITM.
Instead of now just hoping it comes back to me, what I could do instead is sell call options.
Knowing that structurally the pair is in a downtrend & this price action has taken us to the top of this big 10/15y channel.
Now you’re collecting premium to help you finance that early Put option.
You always have options to tweak your positions.
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σ The key is to ask yourself:
“What’s the optimal move I can make right now to adapt to the environment based on greeks metrics & the macro views that I hold?”
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σ I am constantly re-evaluating my assumptions & my positions.
For instance: I may ask myself if the #Greeks are evolving in the way I’d expect in relation to my view?
If they do, don’t touch it.
If they don’t, there is nothing wrong with restructuring.
And that’s how I think about managing options!
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σ Remember, options trading doesn’t have to be a losing game against time.
With the right mindset & strategies, you can make it work in your favor.
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Thank you for making it this far
Cheers!
Imran Lakha
Options Insight
