What Wing Chun Taught Me About Options Tradin

Find out what we can learn about Options Trading from Wing chun kungfu

Donny Yen’s latest movies about Wing Chun grandmaster, Ip Man, started a Wing Chun rage across Asia. As a martial arts fan and a full time options trader with plenty of time for such pursuits during daytime in Asia (since the US market opens in the evening in Asia), I went to Beijing China in order to study this ancient Chinese martial art under Master Wong. The training was systematic and demanding and I am very surprised how much there is to learn about options trading from Wing Chun.

Wing Chun is not only a physical art but a philosophical one which we all saw from how the late Bruce Lee portrayed it. I found that many aspects of Wing Chun’s physical and philosophy applies neatly to options trading. Here are some of them.

Protecting and attacking from your centerline

Wing Chun’s system of fighting involves attacking from and defending your centerline since that is where most of your vital organs as well as center of gravity reside. Once an attacker takes hold of your centerline, you will lose the initiative and will find it hard to turn the tide. This is exactly the same as the all important concept of protecting and trading from your risk capital in options trading. You must have heard it a thousand times how you must only use money you can afford to lose in options trading. Options trading is all about defending the centerline of your trading account, which is your trading capital. Once losses take control of your capital and you lose the ability to defend your capital and you start breaking your trade management policies, you will find it very hard to turn the tide around. In options trading, your trade management and risk control policies is like maintaining the Wing Chun defensive stance, once your stance and structure is broken, it will be extremely difficult for you to turn the tide on your attacker. Similarly, once your risk control measures in options trading are broken and things start going wrong, you will find it very hard to turn the account into a profitable one.

Simultaneous defense and attack

Wing Chun do not believe in singular attack or defense but simultaneously attacking while blocking. This is the same as simultaneously “attacking” using a call or put option and then “blocking” by writing an out of the money call or put option in order to reduce risk. In fact, most options trading strategies require simultaneously buying and writing options, effectively attacking and blocking at the same time. What made options trading (in fact, futures trading as well) so strategic is the fact that unlike stocks where you could only either buy or short (only attack) and not block (hedge using stocks) at the same time, you could simultaneously buy and short options of various strike prices and expiration dates in order to create options trading strategies of various payoff profiles and characteristics.

Strong, Stable Stance

In Wing Chun, like in most martial arts, the first thing you learn and master before moving on to the actual techniques is a strong and stable stance. This strong stance is the foundation upon which all of Wing Chun’s attacks and defenses are based upon. Similarly, successful options trading need to be built upon a strong foundation of knowledge on how options work. Without a comprehensive and strong foundation in the theories and concepts of options trading, one can never hope to attain success. Options trading isn’t simple like stock trading where you simply determine which one and when to buy and then sell it for a profit. Options trading can get very complex. In fact, most beginners to options trading won’t even know which one of the four options orders to use in order to buy an option in the first place. As such, a strong foundation in knowledge is critical to the success of options trading just like a strong stable stance is important in Wing Chun.

Well, as you can see, you can learn about options trading from just about anything you are interested in and being strong in my interests such as martial arts also helped me become a better options trader. I hope that I will gain more insights into the world of options trading as my understanding of Wing Chun increases.