In this case study we look at how to manage risk even during a volatile market that brought volatility. The Federal Reserve has started 2024 trying to stabilize what was said at the end of the year. Looking at the Fed minutes from December, what was clear was that the Fed members are looking to keep rates higher for longer until inflation is actually tamed.

In general we had a volatile start of the year. This means that more than ever, you have to be on top of your risk management especially if you are looking at structures that sell options. On this point we wanted to cut and paste a summary from the Trade Structuring Channel by one of our main traders. You can access this Channel via the Premium Membership.

The main topic is trading and risk managing during a volatile day. He just walks the other members through his logic, and how he managed risk throughout the day yesterday ending with a $3K P&L.

Manage Risk in a Volatile Day - trade structuring
Manage Risk in a Volatile Day 8

Please read on here:

So all out of my 0DTE IC, very nice profit. Sold both Put Call Spreads (pcs) and Call Credit Spreads (ccs) at open for 0.5 (4680/4660 and 4755/4775, respectively), set my Buy to Close (BTCs) for 0.15 as usual, and then fired up my Playstation 5 controller while managing. This is why I’m writing this note: to bullet point what happened.

Using the old targeting system I keep nagging about (read everything above), I kept my eye on 4700p. Market participants never got out of them so I was worried, naturally. But what I did NOT see was a new volume added there or below. So the market was dumping, but why? Where was the volume? What puts were being bought? Without going into too much detail, further chain analysis then showed market makers were hedging for longer-dated expiries, which drove the market down.

These were the levels for the day on SPX.

Manage Risk in a Volatile Day - SPX 2024 01 03 17 10 36
Manage Risk in a Volatile Day 9

So this was just an example of how we manage a volatile day with an Iron Condor. This may be overwhelming, but it shows you the type of work you have to do to become a good trader and risk manager. Our platform provides you with free and premium tools for you to get there!