Trading Options in Turbulent Markets: Master Uncertainty through Active Volatility Management

Chapter 9. Preparing for Trading Using Volatility Strategies

The writing and re-reading of this chapter reminds me of Jon Krakauer's book, Into Thin Air: A Personal Account of the Mt. Everest Disaster (First Anchor Books Edition, May 1998), in which the author recounts a disastrous attempt to climb Mt. Everest. The weather at the summit tends to get violent and thus very dangerous in the early afternoon. The mix of profound emotion, physical strain, and especially low oxygen levels can derail even the best of climbers.

Krakauer wrote that at the summit of Mt. Everest, you no longer pay attention to your emotions or your brain; rather, you solely rely on your clock. At 2:00 p.m. you get out of there! If a member of a climbing group has not reached the summit by that point, he turns around and heads back to the base camp. No argument, no discussion, no matter what. When a pair of climbing groups ignored this wisdom and pressed on to the summit regardless of the time, they were trapped by a storm, and nearly every member of those two climbing groups died.

The parallels between climbing Mt. Everest and options trading are significant and worth paying attention to. Being keenly aware of your risk limits, getting out of a trade no matter what, and relying solely on ironclad discipline rather than heartfelt emotion are the things that separate a lucky trader from a consistent one. Like Mt. Everest, options trading can also be violent and dangerous. But you can learn to take the danger out ...