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!