Retail to Institutional: How David Sun Scaled His ODTE Options Strategies

This episode explores the options trading strategies of David Sun, a fund manager with a unique background as a retail trader. Against the backdrop of his journey from retail options trading to managing a small fund, Sun details his evolution from a naive put seller to a more sophisticated approach incorporating risk management techniques. More significantly, the discussion delves into Sun's custom metrics for measuring risk-return profiles, his use of stop losses, and a debate on whether the volatility risk premium is an edge or merely a factor. For instance, Sun explains his "credit budget" approach, where he limits daily premium sales to control risk, and his use of near-the-money options as a zero-EV diversifier to hedge against losses. As the discussion pivoted to zero-day expiry (0DTE) options, Sun shared his experience, highlighting the increased gamma risk and the need for careful sizing and stop-loss mechanisms. In contrast to common wisdom, Sun argues that high volatility doesn't necessitate increased trade size, and he emphasizes the importance of understanding and modeling all aspects of risk, including slippage and potential market gaps. What this means for aspiring fund managers is that a deep understanding of risk management and a flexible approach to hedging, even if it means incorporating strategies that don't directly generate profit, are crucial for long-term success.