At 3 a.m., Bitcoin suddenly jumped from $68,000 to $73,000, and social media was filled with screams of "the last train before halving." Your fingers trembled on the buy button, and your heartbeat overwhelmed the sound of rain outside the window - this is a typical scene of FOMO (fear of missing out). Data shows that 63% of losing orders come from FOMO-driven buying and selling. When the market is in a frenzy, retail investors pounce on fluctuations like sharks smelling blood, while experts are quietly laying a "cognitive breakwater."
1. The neural trap of FOMO: Why do we always take over at the highest point?
The mirror neurons in the human brain give us an innate instinct to imitate. When we see Tesla's weekly call options soar 300% in a single day, the prefrontal cortex will secrete dopamine, triggering the impulse of "I want to make money if others can make money."
This primitive mechanism is particularly dangerous on the eve of Bitcoin halving - data from the Deribit exchange shows that when the price broke through the historical high, the volume of out-of-the-money options surged 470%, and 78% of the contracts eventually returned to zero.
Nvidia's GTC conference is a living example. When Huang Renxun demonstrated the next-generation AI chip, the IV (implied volatility) of the weekly call option with an exercise price of $1,200 soared to 85%.
Retail investors bought frantically, but ignored two major details: first, the daily time loss (Theta) of the option was as high as 4.2%, equivalent to 0.18% of the principal evaporating every hour; second, institutions were quietly selling call options and buying forward deep out-of-the-money contracts to hedge. As a result, the stock price only rose by 3%, but the weekly contract holders lost 62% due to Theta.
2. Practical analysis: Install “cognitive brake pads” on impulse
1. Establish a “dual-track decision-making system” The secret weapon of top traders is to divide the brain into “emotional brain” and “logical brain”.
For example, when Bitcoin suddenly rises, the emergency program of the emotional brain is activated first:
• Heart rate monitoring method : detect heart rate, and suspend trading if it exceeds the resting heart rate by 20% (neuroscience shows that the decision error rate increases by 37% when the heart rate variability is less than 50ms)
• 5-minute cooling-off period : Set up a delayed transaction function in the trading software to filter impulse purchases like Amazon’s “shopping cart cooling-off period”
Then use the logical brain to execute the preset strategy. For example, before Tesla’s financial report, you can build an “anti-FOMO combination” in advance:
• Long $250 monthly call option (Delta 0.6, Theta loss 0.3%/day)
• Short weekly call options with an exercise price of $270 (Delta 0.3, Theta return 1.2%/day). This "calendar spread" can not only participate in the rise, but also harvest time value with recent contracts, which is equivalent to buying an insurance for impulse.
2. Volatility Anchoring Method FOMO is essentially a misjudgment of volatility. When Bitcoin IV breaks through 80%, remember this formula:
True Profit Probability = (IV - Historical Volatility) / IV
Assuming the current IV is 90% and the actual volatility in the past 30 days is 60%, the excess volatility premium is 33%. At this time, buying an at-the-money call option is equivalent to buying volatility expectations at three times the price.
When Bitcoin hit $70,000 in December 2024, the volatility difference reached 41%. As a result, the price fell back by 23%, and the average loss of out-of-the-money option holders was 74%.
3. Three lifebuoys for retail investors
1. Time value lens
Before placing an order, ask yourself: Can the daily Theta loss of this Bitcoin option be covered by the potential Gamma gain? Use this formula to quickly check:
Safe holding period = (premium × 20%) / (Theta)
Assuming the premium is $1,000 and Theta is -$8/day, the safety period is only 2.5 days. If you exceed this time limit, you will pay the "panic tax" to the market.
2. Position Sentiment Thermometer
The account is divided into "impulsive positions" and "strategic positions". The former does not exceed 5% of the total funds and is used to release the FOMO impulse; the latter is strictly allocated according to volatility and time value. When the impulsive position loses 30%, it is forced to lock the position for 24 hours - this is equivalent to installing a "circuit breaker mechanism" in the brain.
3. Long and short balance
In a frenzy, buy call options and sell call options with higher strike prices at the same time. For example, when Bitcoin hit $70,000:
• Buying a $70,000 call option costs 5 BTC
• Selling a $75,000 call option earns 3 BTC and the net cost drops to 2 BTC, but the maximum loss is locked at 2 BTC, avoiding the tragedy of 5 BTC becoming zero when the option expires.
Of course, the key to all disciplines lies in execution. Why do institutions set up fund managers and traders separately? I think it is also to avoid the "impulsive punishment" of FOMO emotions on people. The market always rewards people who delay gratification and punishes the animal impulse of immediate gratification. When you learn to tie up the wild horse of emotions with the rope of logic, you can really get the ticket to option trading.
4. Next Issue Preview
Tomorrow night we will dive into the Seller Survival Guide
Homework
Emotional diary : Next time you are tempted to trade, record your heart rate, social media browsing time, trading decision time, and analyze FOMO triggers
Volatility Scanner : Find Bitcoin options for the next month on Deribit, calculate the (IV - RV) difference, and filter out contracts with a difference of <15% to simulate a buy-side strategy
Safety Cabin Experiment : Use $1,000 to set up an "impulse warehouse" and enforce a 5-minute delay in trading. Compare the returns of the strategic warehouses after one week
