By Dinesh Kumar · Adapted from my session “Framework for Consistent Wealth Creation” at an investor meet
Selling options is an insurance business. You collect small, steady premiums — and occasionally the storm arrives. The sellers who survive for decades are not the ones with the cleverest strategies; they are the ones with the strictest rules. These are my five non-negotiables.
1. Capital preservation is the strategy
Everything else is built on this foundation. A destroyed account cannot compound, cannot learn, cannot wait for the next opportunity. Every rule below exists to protect the ability to play tomorrow.
2. Every SELL order carries its stop-loss
The SL order goes in with the position — not after “watching for a while.” An option seller without a stop-loss is short unlimited risk for a limited premium. The market does not send warnings before a 2% gap.
3. Size positions so a bad day stays a bad day
Cap the risk on any single day to 1–2% of capital. As I covered in the drawdown-maths article, small losses are recoverable in days; deep ones cost years. Position sizing is the dial that decides which kind you will have.
4. Hedge intelligently
Hedges are usually bought far away for margin benefit. But when hedging costs fall, bring the hedges closer to your sold strikes — that is what stands between you and a black-swan move. Think of the hedge premium as the insurance you pay on your insurance business.
5. Keep accounts with more than one broker
Terminals freeze. Brokers have outages — usually on exactly the wrong day. A second account at a different broker lets you take a counter-position when your primary is unreachable. It costs almost nothing to maintain and is worth everything in the one hour you need it.
None of this is exciting. That is the point — boring survives.
This article is for education only and is not investment advice or a recommendation. Investments in securities markets are subject to market risks. Read all related documents carefully before investing.