Unit 4 · Level 2 · Managing the book
The income trader's discipline
One condor is a trade; twelve open positions are a book, and the book has risks no single ticket shows. Size each trade by its MAX loss. The 1% rule from the Trading course translates directly. Cap how many positions run at once, because tested sides demand attention exactly when you have the least to spare. And watch correlation: ten 'diversified' condors on ten tech names is really one giant bet that tech stays calm. In March 2020, every 'independent' short-vol position lost together.
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What you get asked
What's the correlation trap in an income book?
Volatility is the common factor: when the market lurches, every short-premium position on every ticker gets hit in the same week. Count your book's TOTAL max loss as one number.
Size an income trade by its ___ loss, never by the credit received.
A €1.50 credit feels small; the €3.50 max loss is what shows up in the bad week. Sizing by credit is how 'income' accounts blow up on schedule.
Match each discipline rule to what it protects against
Four boring rules, one purpose: making sure the inevitable bad month is survivable. Income trading is a marathon where finishing is the win condition.
Why keep a healthy buying-power reserve when selling premium?
The same event that hurts your positions inflates the margin they demand. Traders who were fully deployed got forcibly liquidated at the 2020 lows. The reserve is your right to decide for yourself.
An income trader's monthly P&L target tempts them to add 'just two more' condors. The disciplined response?
Reaching for yield at month-end is how good months buy terrible ones. The book's max drawdown is set by what you risk, not by what you hope to earn. 🐜
The rest of this unit
Rolls, profit rules, assignment surprises: running a spread book like a professional.