Diamond Hands in Options Trading

Alright, so you’ve seen the term “diamond hands” somewhere and wondered what it’s all about? 

Well, in options trading it’s simple. It’s having the mental strength to disregard short term variance and continuing to hold a position. 

Sounds easy right? Well, I think there might be a ton of people that would disagree. 

Let’s break it down.

Imagine two scenarios where you’re debating what to do with the following:

  1. Losing position
  2. Winning position

For a losing position the question is, do you cut your losses or wait for the position to recover?

For a winning position the question is, do you keep waiting for bigger gains or risk losing the gains you already have? 

See, it cuts both ways. 

Diamond hands can either be your friend or foe.

In both scenarios you have a risk/reward scenario and an unknown variable (future price movements). 

Gains are gains, but missing out on gains can lead to serious FOMO

So what do you do? 

Well, there’s a few more questions to ask yourself so you can make the best possible decision.  

  1. What is currently moving prices? IV? Earnings results? Sentiment? News?
  2. What’s my sunk cost?
  3. How much more do I have to lose?
  4. Does this fit into my bankroll management strategy?
  5. What’s my position size?
  6. What percentage of my portfolio is the current position?
  7. How much more room does this have to run? 
  8. Any future news to push things further up/down
  9. How close to expiration am I? 
  10. What’s theta at? 
  11. How much is it eating away at my position?

And the list goes on and on. 

At the end of the day, the question is one of risk vs reward. 

What’s the downside vs upside and the odds of both occurring, which you can only know from experience and understanding of current market sentiment. 

Either way, there is no right answer. 

Diamond hands can help exponentially return gains or lead to burning capital and holding positions that will never profit. 

The key is to weigh your options carefully and make the best value judgement in that moment.