Max Drawdown Control Techniques in Option Writing!Hello Traders!
Option writing can generate consistent income, but only if risk is managed well. The biggest threat? Max drawdown . Even one bad expiry or a trending move against your position can wipe out weeks of profit. That’s why today’s post is all about drawdown control techniques — so you stay profitable, consistent, and emotionally stable.
Top Techniques to Control Drawdowns in Option Writing
Position Sizing is Your First Shield: Never write options with your full capital. Risk only 1–2% of your capital per trade. Smaller lots = smaller damage.
Avoid High IV Events: Skip writing options during major events like RBI, Fed meetings, elections, etc. Volatility can crush your position in seconds.
Use Hedged Strategies: Use spreads (e.g., Iron Condor, Credit Spreads) instead of naked writing. It limits the max loss while capping profits moderately.
Track Max Loss in Advance: Before taking a position, use payoff diagrams to see your worst-case loss — and stay below it. Never write blind.
Follow OI + Price Structure: Combine Open Interest shifts with price action to avoid writing near breakout zones or momentum candles.
Adjust & Roll Smartly: Don’t freeze when market moves fast. Learn to adjust strikes or roll positions to next expiry to limit the damage.
Have a Weekly Stop Limit: Define a max weekly drawdown (e.g., 3%) — if hit, stop trading for the week. It keeps your head cool.
Rahul’s Tip
Drawdown is the real game in option writing. Not profit – but protecting capital is your edge. You don’t win by earning more — you win by losing less.
Conclusion
Option writing rewards discipline, not aggression. If you want to make a career out of it, controlling drawdowns is the #1 priority . Focus on risk-adjusted returns , not just premium collected. Write smart, hedge well, and walk away when the odds are not in your favor.
Have you ever faced a big drawdown in option selling? What did you learn from it? Share your thoughts below!
