How Options Trading is like Playing Chess

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by Gavin in Blog
March 26, 2024 1 comment
how options trading is like chess

There was an uptick in trading and online chess during the pandemic in 2020.

The popularity of chess was further spurred that same year by Netflix’s release of its popular mini-series The Queen’s Gambit, named after a particular opening move in chess of the same name.

Those who trade options and play chess may see the similarities between the two.


The Opening

Chess player: “I will start with the classic London System by moving my dark-square bishop out and then my pawn to e3 to defend it.”

Options trader: “I will initiate a bull put spread by selling the 15-delta put and buying a long put  at the 10-delta for protection.”

Chess player: “My opponent initiated King’s pawn to e4. I can respond with either the French Defense, the Sicilian Dragon, or the Caro Kann.”

Options trader: “The Market is moving down against my put credit spread. I can roll the put spread down or change the expiration to a later term to give me more time. Or I can add a bear call spread to reduce my delta.”

The Mid Game

Chess player: “My bishop is being attacked. I can play defense by moving it out. Or I can play offense by attacking the opponent’s queen.”

Options trader: “Market is rallying up again the bear call spread of my iron condor. I can play defense by moving the call spread further out of the money. Or I can play offense by moving a put spread up.”

 Chess player: “Sometimes I can promote my lowly pawn into a powerful queen.”

Options trader: “Sometimes, the Market is cooperating. I’ll take it. But I can not always count on it.”

 Chess player: “My opponent uses the horse to make a forked attack on my rook and queen. There is nothing I can do. I lose an important piece. I am demoralized. But I continue to play.”

 Options trader: “Even though I maintain delta-neutrality in my range-bound strategy, the Market makes a large move. There is nothing I can do. I lose physical capital and emotional capital. My confidence wanes. But I continue to play.”

The End Game

This is where the similarity between chess and options ends.

In game theory, chess is considered a “finite game.”

Trading is considered an “infinite game”.

The game of chess will end with a white win, a black win, or a draw. In trading, there is no end. And no clear winner or loser.

You just have players who play as long as they can without dropping out.

The game’s goal is not to lose so much that you have to drop out.

Final Thoughts

In the beginning, we lose more than we win.

We learn different openings and try different strategies.

At times, we feel discouraged.

As we continue to play, we get better, and we improve.

And someday, we may get more wins than we lose.

I am reminded of the motivational video of Michelle Khare, who set out to reach the 1000 Elo rank in chess in 30 days.

While grand-masters have a rank of 2500 or higher, an Elo rank of 1000 is no longer a beginner.

She spent at least 4 hours playing online chess, learning from coaches, doing chess exercises, and performing post-game analysis.

For options traders, this may sound familiar.

We spend hours learning our Greeks, backtesting our strategy, journaling, and reviewing our trades.

After a month, she did not achieve her initial goal.

Chess turned out to be a bit more difficult than expected.

Many traders have said the same about options trading.

Nevertheless, she continued to train.

At month six, she hit a plateau where it looked like she could not progress further.

Yet, she continued.

On month eight, she finally hit the 1000 rank.

She may not have reached her goal in the original time, but eventually, she did.

Chess and options trading is a skill that takes time to learn and develop.

As we play one game after another and make one trade after another, we will someday reach our goal.

We hope you enjoyed this article on how options trading is like chess.

If you have any questions, please send an email or leave a comment below.

Trade safe!

Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.


1 Comment
  1. Options student guy says:

    Great comparison. I love it.

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Options Trading 101 - The Ultimate Beginners Guide To Options

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