Professional Advanced

Options Trading Course

Lesson 9: The Psychology & Risk management

of Winning Traders

Adam Khoo Bang Pham Van

Professional Trader Options Trader & Specialist

www.piranhaprofits.com
www.wealthacademyglobal.com
 Plan Your Trade – Risk Profile
One of the most important concepts in trading
options:
- What is the risk profile of your trade?

+ Risk profile analysis on trading platform
- What is the probability of winning?
- What is the worst case scenario?
- What is your contingency plan?
- Break-even analysis
- Profit potential
- Trade behavior

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 Risk Reward Analysis
Before ANY trade, review the Risk Reward Profile
of the trade:
• Check the worst case loss
• Can you afford the worst case loss?
• Is it within your portfolio rules (2%, 5%,…)?
• What is the reward to accept that risk?
• Where is the loss cutting point?

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 What if you are wrong?
- No one can predict the market moves every time
- Strategy is fine, real skill is in risk management
- You might still be profitable even if you are wrong
… just do not go too far wrong
- Don’t give up when you hit multiple losing trades
in a row. Perseverance is key to winning in the
long term

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 Take care of your risk,

Profit will take care of you

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 My Costly Mistakes
Mistake #1: Not understanding what could go wrong
with my trades
• I made lots of money selling naked options on VXX and
UVXY. However, I did not have proper understanding of
what could go wrong with it, and became very
complacent
• One day, market crashed, VIX surged in several days,
magnifying the VXX and UVXY spikes, while I did not
have timely adjustments

- All my profits for a year were wiped out within a week


! ACTION: Understand the risk profile of any trade, AND

make necessary adjustments on time

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 Psychology & Risk Management
1. Be disciplined:

There is simply no strategy that guarantees 100%
winning rate. Hence, there will be losing trades, and that
is part of the long term winning plan, as long as you
stay disciplined and manage your risks


Once you have contingency/adjustment/exit plan, stick

to it. Don’t let the emotion, ego or hope make you to
hold on to a losing trade and potentially ruin all your
hard earn money. Consistent profit does not come from
being right all the time

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 Psychology & Risk Management
2. Adjust your trade / cut loss timely – no matter how
much profit you have made, you could be wrong in any
trade. Don’t screw up mentally and financially.
Once losing, you could start to make “revenge” trades
(emotional trades), and that could be a perfect setup
for a disaster
Even if the trend is likely to be reversed, move on – 

no woulda, shoulda, coulda
Rule #1 – Protect your capital
Rule #2 – Remember Rule #1

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 Remember …
• If you lose 10%, you need to make 11% to recover
• If you lose 25%, you need to make 33% to recover
• If you lose 50%, you need to make 100% to recover

The more you let your loss snow-ball, 


the larger profits you need to make to
recover


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 My Costly Mistakes
Mistake #2: Not adjusting / cutting loss on time 

- Iron Condors on SPX
I set clear criteria where I needed to make adjustments,
but did not stick to the plan
- My emotion kicked in, urging me… “what if I just hold on
to my trade for one more day… there must be a trend
reversal”
- This often led to big losses which wiped out the result of
several months


! ACTION: Discipline trumps conviction! Cut loss early

(cheaper) and move on. No woulda, shoulda, coulda

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 Psychology & Risk Management

3. Have a right position sizing and

diversification



- Do not max out your account capacity, ideally
<50-70%



- Diversify among various strategies and securities

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 My Costly Mistakes
Mistake #3: Over trading
• At times, I were so keen on certain trades, and over
traded it – max out account buying power capacity
• When markets moved against me / IV surged, my
account went into margin calls
• It forced me to liquidate some positions - often with
losses 


! ACTION: Do not over leverage. Ideally only trade

50-70% of your account capacity, leaving room for margin
increases or simply for better opportunities that market
might offer you

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 My Costly Mistakes
Mistake #4: Not diversifying: Iron Condors / Strangles
on /CL
• At times, my portfolio was heavily weighted on 1-2
securities and/or 1-2 option strategies
• When all underlying securities moved against me in a
“perfect storm”, I suffered significant losses


! ACTION: Diversify to several strategies and

securities to avoid big “drawdown” days

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 Psychology & Risk Management

4. Be patient –

Wait for the right time (eg. high IV to sell options)

Do nothing is better than doing something that is not
right
5. Avoid trading through key events -

(eg. OPEC meeting, key election/referendum, etc.)



– The intent is to make money, not to get excitement!

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 Tip: My Costly Mistakes
Mistake # 5: Under-estimating the impact of key
events / 

IV changes
• On Brexit day, my portfolio suffered big drawdown from
the market volatility (IV surge and lack of liquidity).
Fortunately, I managed to not lose money, due to timely
adjustments
• Oil IV surged during few weeks leading to the OPEC
meeting in Nov/Dec 2016. In addition, OPEC decision to
cut production volume caused +20% surge in oil price

- This resulted in a very bad month for my portfolio
! ACTION: Avoid trading through key events

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 Psychology & Risk Management

6. Trade the math, as robotic as possible. Trade

only what is in front of you, not what you or
anybody else think the market will do
7. If you must speculate, assume the worst
case, not the best scenario

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 Other Watch-Out - My Mistakes
Commissions and fees matter!!!
• Commissions and fees could be a significant cost
and reduce your ROI substantially. Track them
closely and call brokers to clarify if needed
• One of my accounts got charged with hefty fees
without me knowing it until the end of the year
!ACTION:

- Avoid trading securities with low price / low
premiums

- Negotiate better commissions (TOS)

- Watch other (hidden) fees (eg. IB charges)

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 Professional Advanced
Options Trading Course
Lesson 9: The Psychology & Risk management

of Winning Traders

Adam Khoo Bang Pham Van

Professional Trader Options Trader & Specialist

www.piranhaprofits.com
www.wealthacademyglobal.com