Depending on your strike and maturity, you may not lose anything. If the entire market sells off hard, correlation will go to 1 in the slide. Index options tend to price in some expectation of this (it's called "correlation skew") for downside options. So you'll make money on three things in a slide:
* delta, ie the slide itself,
* vega, ie the increased expectation of volatility for the remaining duration of the option contract,
* skew, which will increase more for index options than for single names due to implied correlation resetting higher.
I have noticed that the market seems to be in a "buy any dip" mentality, so be aware of that. If the market sells off, it may come right back the next day. Look at what happened already with the coronavirus outbreak, as well as Iran's missile launches before that.
I got out around 23rd Jan when I started hearing about Corona virus spread in China. Market went up and it looks like I left 10-15% of profit on the table. But as I live in Asia and I see what is happening economically in many countries now I still think it was a good decision. If the market doesn't drop in the next few weeks it will once the 1st quarter results come out
Can you recommend a good source to learn more about how options trading works in real life?
Id like to know how you guys generate trading ideas, come up with bet size, study market sentiments etc
Trading options is extremely risky and a lot of people teaching it, teach it because doing it is normally not profitable and they have already lost their money.
Unless you have some huge edge, which no one does, options are the last place to spend your time and blow your money.
There's an article I read a few years ago talking about the possible outcomes from startup equity, using the analogy of a 99 sided die.
It's something like:
1-50: nothing
51-70: a little
70-90: what you would get from a FAANG
90-99: millionaire
100: you're a billionaire
And then goes on to note that there is no 100 on a 99 sided die, seems like options are similar :) I have no belief in my ability to beat the market and treat them like a fun thing to spend some money on, not like an investment.
https://www.google.com/search?q=S%26P&rlz=1C1GCEB_enUS862US8...