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In this interview, quant trader Cem Karsan—co-founder of Kai Volatility and Kai Wealth—sits down with the Words of Rizdom podcast in Chicago to unpack how he thinks about markets. A 26-year options veteran and former major market maker, Karsan is known for eerily precise calls that come from understanding structural flows rather than guessing direction. If you’ve heard people say “options are the dog, not the tail,” this is the guy they’re talking about.
You’ll learn why he treats the market as a probability distribution (not a single price), how options create a three-dimensional view of risk, and how “flows” like charm, vanna, and gamma can nudge price day-to-day. We’ll translate his playbook into plain English: when flows likely support, when they likely sap momentum, and how a trader can frame smarter, lower-risk bets around those windows—so you’re not just calling up or down, you’re structuring strategy around the most probable paths.
Cem Karsan Playbook & Strategy: How He Actually Trades
Core Operating System: Flows First
Karsan treats price as the surface result of underlying options “flows,” not just fundamentals or charts. The big idea: understand how dealers hedge (gamma, vanna, charm), and you can often anticipate where liquidity will push or cushion price. Here’s how to translate that into rules you can actually trade.
- Map the distribution, not a single target: build scenarios for range expansion/mean reversion based on current options positioning and volatility regime.
- Prioritize structural flows over narratives: if dealer hedging implies dampening (long gamma), expect chop; if hedging implies amplification (short gamma), expect trend/air pockets.
- Treat options metrics (skew, term structure, VVIX) as state variables; only take aggressive directional risk when they align with supportive flows.
Regime Map: When Flows Dominate vs. When Macro Rules
Not every day is a “flow day.” Karsan frames markets by regime—low-vol/liquidity abundant vs. high-vol/liquidity fragile—and adapts his aggression accordingly. Use this map to avoid forcing trades in the wrong environment.
- If VIX term structure is in contango and realized vol < implied vol, expect flow-driven mean reversion; bias toward income/mean-revert setups.
- If term structure inverts and VVIX rises, expect convexity and gap risk; cut size, prefer defined-risk, and allow for outsized tails.
- In inflationary/tight-liquidity regimes, assume trends persist longer and rebounds fade faster; shorten holding periods and demand better asymmetry.
Daily Prep & Dashboard
His daily process centers on measuring how option books will likely force hedging. Build a compact dashboard to judge whether flows will add headwinds or tailwinds to spot.
- Track: 30-day skew, index dispersion, VVIX, and dealer gamma/vanna estimates; trade smaller or rule-based if signals disagree.
- Note OPEX proximity and large strike clusters (“magnets”); price gravitates to high open-interest nodes in long-gamma regimes.
- Mark event risk (CPI/Fed) and expected vol-crush/vol-expansion windows to set intraday expectations.
Entries Around Vanna/Charm Windows
Vanna (delta sensitivity to IV) and charm (delta decay with time) often create time-of-day and post-event edges. Use them to tilt entries when they align with term structure and dealer positioning.
- When IV is falling and dealers are long vanna, expect supportive buy-pressure from hedging—lean long on dips into support; scale out into the cash close.
- Around regular morning vanna/charm windows, favor mean-revert fades if gamma is positive; favor momentum continuation if gamma is negative.
- After macro events that crush IV, expect charm to add a drift component for 1–3 sessions—use call spreads or put credit spreads rather than naked delta.
Trade Structures He Actually Uses (Risk First)
Karsan emphasizes defined-risk option structures that monetize flow edges without blowing up on regime shifts. Keep deltas controlled, harvest carry when flow is your friend, and stay convex when it isn’t.
- In supportive/long-gamma regimes: sell premium with protection (credit put spreads, iron flies near magnets), short duration (≤7–14DTE), target 15–25 delta wings.
- In amplifying/short-gamma regimes: buy convexity (debit call/put spreads, calendars into events), accept lower win-rate for fatter tails.
- Use butterflies around large strikes into OPEX for pin risk, but close before the final hour if gamma flips.
Position Sizing & Risk Controls
Edge comes from repeating small, favorable bets inside the right regime—not swinging for fences. Bake risk into the rules so you don’t have to “feel” it in real time.
- Vol-target your book: as VIX/VVIX rise, cut unit size and widen profit-taking; as they fall, allow slightly larger size but cap gross short-vol exposure.
- Set Greek limits per trade and portfolio (max net delta, gamma, and vega); flatten if VVIX spikes or term structure flips.
- Hard-stop defined: if spot breaks beyond the next high-OI strike cluster and realized vol outruns implied, exit spreads—don’t “hope” for a pin.
Event Playbook: CPI, FOMC, OPEX
Events change the plumbing: positioning cleans up, IV resets, and hedging flows can reverse. Treat each event type with its own template so you’re not guessing.
- Pre-CPI/FOMC: reduce short-vol, favor calendars/flies to own vol cheap; avoid naked directional deltas. Post-event, lean into IV crush with defined short-vol if gamma turns positive.
- OPEX week: expect magnets to exert pull; trade toward the largest strikes with flies/spreads, but stand down if books are off-sides and gamma is negative.
- After major rebalances, reassess regime—don’t carry pre-event biases into a new vol state.
Intraday Execution: Timing the Tape
Even with the right setup, timing matters. Karsan watches open/close dynamics and known flow windows to avoid fighting the tape.
- First 30–60 minutes: price discovery and dealer re-hedging; avoid adding size until flows stabilize relative to your gamma/vanna read.
- Midday: mean-revert edges dominate in long-gamma states—work profit targets and avoid chasing.
- Final hour: hedging accelerates toward strikes; manage winners actively and flatten if flow signals flip.
Adjustments, Rolls, and Exits
The edge compounds when you manage positions like an options desk, not a stock picker. Systematize what you’ll do before it’s needed.
- If IV collapses faster than expected, capture theta early: take 50–70% max profit on short-vol structures and redeploy next session.
- If VVIX/VIX spikes and gamma turns negative against you, convert credit to debit (roll down/through) or cut to defined max loss—never “convert” a loser into naked risk.
- On winners into OPEX pins, close spreads before last-hour liquidity thins to avoid assignment slippage.
Start With Risk: Size Positions To Volatility, Not Conviction
Cem Karsan opens with a simple truth: your conviction doesn’t pay margin—volatility does. He frames every trade by how noisy the market is, not how “right” he feels, and lets realized and implied volatility set the throttle. When vol swells, he cuts unit size and shortens holding periods; when vol compresses, he allows slightly larger sizing but keeps risk capped. The goal is a consistent risk budget, so a wild week can’t erase a quiet month.
Practically, he anchors position size to a volatility proxy—think ATR for single names or VIX/VVIX for index—and back-solves for the quantity that keeps daily P&L variance inside his band. If the proxy doubles, the size halves; if it halves, the size only scales up within a hard ceiling to avoid creeping leverage. He defines max loss per idea before entry and refuses to average down unless volatility falls and the thesis remains intact. In short, Cem turns volatility into a ruler, so every trade fits the same risk frame, no matter how compelling the story sounds.
Diversify By Underlying, Strategy, And Duration To Smooth the Equity Curve
Cem Karsan doesn’t rely on one shiny setup; he stacks uncorrelated edges so no single outcome can wreck the month. He splits exposure across indices and selects single names, mixes mean-reversion income with convex trend plays, and staggers expirations so not everything settles on the same day. That blend reduces P&L lumpiness and makes losing streaks shallower and shorter. The point isn’t maximal return—it’s a steadier path that keeps you in the game.
In practice, he aims for different “jobs” in the book: defined-risk premium sells to harvest carry, event calendars to own optionality, and directional spreads to express regime views—each with distinct timeframes. When a regime flips, some pieces naturally benefit while others scale down or expire harmlessly, which cushions drawdowns. Position limits are set at the bucket level first, then at the trade level, so nothing crowds out the rest. Cem keeps correlation top of mind: if two trades win and lose together, he treats them as one and sizes accordingly.
Trade Mechanics Over Forecasts: Let Flow And Structure Guide Entries
Cem Karsan keeps prediction on a short leash and lets mechanics do the heavy lifting. He defines where dealers likely hedge, where option strikes cluster, and how volatility is shifting, then waits for the price to interact with those “plumbing” levels. If the flow backdrop is supportive, he leans in with defined-risk structures; if it’s hostile, he passes—even when the story sounds perfect. The entry is triggered by the structure of the market, not a hunch about tomorrow’s headline.
In application, Cem wants confluence: positive flow signals, clean strike magnets, and a timing window where charm or vanna likely add drift. He scales in on tests of levels rather than chasing breaks, and he pre-writes exit logic so execution is automatic when conditions change. When flows flip or volatility regime shifts, he adjusts deltas or closes—no debating, just rules. The result is a playbook that turns messy tape into repeatable entries and keeps emotion out of the driver’s seat.
Prefer Defined-Risk Structures; Reserve Undefined Risk For Exceptional Setups Only
Cem Karsan is blunt: undefined risk is gasoline—great for speed, fatal for control. He prefers defined-risk option spreads that cap the downside on entry, so surprises can’t nuke the account. The aim is asymmetric payoff with pre-agreed losses, not hero trades sized on bravado. If a setup can’t work inside a defined structure, Cem treats that as a signal to skip it, not to “go naked.”
When he does consider undefined risk, Cem demands rare alignment: dominant regime edge, supportive flows, tight timing window, and strict position limits. Even then, he pairs it with hedges or fast profit-taking rules and a hard stop based on volatility triggers, not feelings. Most days, it’s debit or credit spreads, calendars, or flies—clean, hedgeable, and easy to exit under stress. That discipline keeps his worst day small enough that the next day still belongs to the strategy, not to damage control.
Write Playbooks For Events; Execute Rules, Review Variance, Iterate Weekly
Cem Karsan treats every recurring catalyst—CPI, FOMC, earnings, OPEX—like a sport he practices all season. He builds a pre-event checklist, a day-of execution plan, and a post-event debrief so nothing depends on memory or mood. Before the event, he defines allowed structures, max size, and what to do if volatility explodes or collapses. The goal is to turn chaos into routine and make results comparable week to week.
After each event cycle, Cem Karsan measures what actually happened versus the playbook assumptions, then tweaks rules—entry timing, DTE selection, wing widths, take-profit thresholds. If variance widens, he scales risk down; if outcomes cluster around plan, he allows modest size increases within hard caps. He tags trades by event type and regime, so he knows which plays deserve more reps and which need the bench. The edge compounds not by guessing the next print but by tightening the machine one iteration at a time.
Cem Karsan’s message lands the same way every time: treat price as the output of options flows, size to volatility, and let rules—not stories—drive execution. He builds from first principles: map the regime, read the hedging pressures (gamma, charm, vanna), and only take risk when the plumbing supports your idea. That’s why his positions are right-sized to the current noise, diversified by underlying/strategy/duration, and expressed with defined risk as the default. When the environment flips, he doesn’t argue—he adjusts deltas, rolls, or exits, keeping the worst day small enough to show up strong tomorrow.
The practical edge is in the routine. Cem Karsan uses a simple dashboard, event playbooks, and prewritten exit logic to make decisions fast and repeatable. He pins trades to strike “magnets” in calm, long-gamma regimes, buys convexity when hedging amplifies moves, and lets volatility crush or expand do the heavy lifting around catalysts. Each week, he reviews variance versus plan, tightens the screws on what works, and shelves what doesn’t. The result isn’t magic; it’s a machine: flows for timing, volatility for sizing, defined structures for protection, and relentless iteration to keep the curve smooth and the account alive.
