One of the best podcasts to follow for an options trader is The Trade Busters by David Sun. David is an electrical engineer by background. In his spare time, he started as an options trader, as many of us. Then he turned his hobby into his profession. Today he runs an options trading fund.
I asked David Sun for his key insights into succeeding as an options trader. He gave me four principles, which you can learn more about in this video interview.
The interview offers value bombs for a beginning or intermediate options trader. It is based on a series of episodes he did in his podcast – called “first principles”.
Learn the four principles for an options trader to succeed
The video was produced with Streamyard – an easy-to-use and amazing tool for live streaming and recording
Do you like the video? SUBSCRIBE TO THETA PROFITS ON YOUTUBE!
You should watch the full video interview to learn about the four principles.
However, here is a summary:
Principle 1: Know your edge
“Trading is one of those activities where the feedback you get can be totally wrong. You might get rewarded for doing the wrong thing.”
The first principle is the importance of understanding your edge. An edge is your reason for believing a strategy will make money in the long run. In options trading, many strategies rely on the concept of the volatility risk premium, where options are generally overpriced due to the fear and hedging needs of other market participants.
But knowing your edge goes deeper than this. It’s about having confidence in the reasoning behind your trades. Why should your strategy work? Without this clarity, you might find yourself making money when you shouldn’t or losing money when you’re doing the right thing—leading to confusion and frustration. Traders need a clear, data-driven understanding of their edge to stay consistent and avoid chasing random outcomes.
David Sun mentions four types of edge that you can have as an options trader. Watch the video to learn what they are.
- Tradingview – the fastest way to follow markets
- OptionStrat – trade smarter with the best visualization and analysis tools available
Principle 2: Volatility steals your edge
“If you lose 50%, you need to gain 100% to get back to even. This is the drag of volatility.”
Volatility is a double-edged sword in trading. While it creates opportunities, it can also ruin your profits if not managed properly. David explains how losses are compounded, making recovery disproportionately harder. For example, losing 10% of your account requires more than a 10% gain to recover due to the impact of compounding.
To protect your edge, David stresses the importance of managing drawdowns and not taking on too much risk. This involves sizing your trades correctly and avoiding strategies that expose your portfolio to excessive volatility. Always think about your worst-case scenario and ensure it won’t wipe out your account.
Principle 3. Don’t be a turkey
“If there’s a chance you can blow up, you will. And if you can blow up, you have no edge.”
Inspired by Nassim Taleb’s famous “turkey problem,” this principle is about avoiding catastrophic risks. A turkey might feel safe and comfortable every day of its life—until Thanksgiving comes. Similarly, traders might feel secure as they make steady profits, only to be blindsided by a rare but devastating market event.
David advises traders to always account for black swan events, those rare, unpredictable market moves that can lead to massive losses. This means having stop-losses in place, managing position sizes conservatively, and even considering portfolio hedges like low-delta put options. Treat trading like a business, and just like any business, always have “insurance” to protect against the unexpected.
Principle 4. Think in components
“Break down your strategy into pieces and evaluate each part. What’s working? What isn’t?”
The final principle is about simplifying your trading approach. Instead of getting lost in the complexity of markets and strategies, think of your trades as a combination of smaller components. For instance, an iron condor consists of selling a strangle and buying wings for protection. Analyze each part of the trade—how much risk and reward does it add? Is it doing what you expect?
By breaking strategies into their building blocks, you can refine them over time. This approach helps you understand why certain mechanics work and whether they’re worth keeping. It’s about going back to the basics and ensuring every part of your strategy serves a purpose.
Summing up: Key takeaways for a beginner options trader
David’s four principles highlight a roadmap to success for retail traders:
- Understand your edge: Know why your strategy should make money.
- Manage volatility: Protect your account by sizing trades correctly and minimizing drawdowns.
- Avoid catastrophic risks: Treat trading like a business and use hedges or stop-losses to survive black swan events.
- Simplify and analyze: Break down strategies into components and evaluate their effectiveness.
The Trade Busters
David Sun can be found at thetradebusters.com. The link leads to a Google sheet where he is sharing detailed information about his strategies, podcast episodes, articles he has written and more.
David also runs the podcast The Tradebusters. It is highly recommended listening for any serious options trader.
This interview was based on a series he made on his podcast called First Principles. You find all the four episodes below if you want to dig deeper into the topics discussed.
