A Beginner's way to trade options.

[scorpio77]

Dear ST,

Have recently started traing in options and have been buying naked put / calls on the nifty for the last three months with a good success rate of 70%. Last week I was short on the market (Put 3500)and could not square off my position on friday as I was in a meeting!! Proved an expensive mistake:rofl:

What form of trading in options do you suggest to people like me who cannot monitor the screen constantly? I am still skeptical on writing calls / puts in view of the risk? What sort of a margin does one require to write a Put / call?
Do let me know your thoughts!

Thank you in advance.

Dear Murtaza,

Sell the 3600 put at whatever price you get...I expect that it will expire worthless....

Tomorrow I will sell my 3700 calls....as they have appreciated by 400 %. I will see at what price the future trades,calculate in-the-moneyness,add 80-100 Rs for time value and try to sell the calls.....Sellers will come tomorrow.If the calls are not tradable ( I dont expect that to happen....we will have to try some more time and the short sellers,straddle sellers will lap it up...they better do..... We will get to sell the calls tomorrow at good price as brokers will square off their clients outstanding calls sell position.

All depends on what level Nifty opens tomorrow but tomorrow we can certainly bring some decent money home...

Best Wishes,

Smart_trade

 

[Smart_trade]

Yes...he probably thought it as a CALL written, that's why stated about margin.

Also, say, I'm holding some stocks in bulk and writing 'out of money' CALLs of the same...At what time(1st week, 2nd week? near expiry?) and in which months contract will be better to write calls.

ST...continue posting your option trades...good learning...

Hari,

Covered call is a strategy which will work well in mkt environment is stable to slightly bullish....In strongly trending up mkts, you will be much better off if you dont write the calls.....In strongly downtrending mkts,covered call writing is a nightmare....

I used to wait till mkt goes in overbought region on 14 days RSI and then used to write ATM calls against stocks held by me...try that...

It is best to write the middle month calls at around 20th of the month as you get good liquidity and good premiums there....

ST

 

[Smart_trade]

Dear ST,

Have recently started traing in options and have been buying naked put / calls on the nifty for the last three months with a good success rate of 70%. Last week I was short on the market (Put 3500)and could not square off my position on friday as I was in a meeting!! Proved an expensive mistake:rofl:

What form of trading in options do you suggest to people like me who cannot monitor the screen constantly? I am still skeptical on writing calls / puts in view of the risk? What sort of a margin does one require to write a Put / call?
Do let me know your thoughts!

Thank you in advance.

The best form of trading for you will be buying calls or puts when mkt breaks an important resistance or support levels and get out with profits/loss in 3-4 days....so that time decay against you is minimum....

Selling options should be avoided if you cannot monitor the mkts too closely and act fast.....it could prove very expensive.

The hit rate you have is fantastic.....not many will have that high success rate.....great going....

Best Wishes....

Smart_trade

 

[AW10]

AW10, how you calculated "max return of 16 rs."

Hari, I got ST's position wrong (don't know how but assumed that he was short 3700 put). When I am short 3700 put, and it is trading at 16rs in mkt, then if mkt remains above 3700 till expiry, the max that I will get is this 16 Rs.
So I have to choice
(1) earning 16 Rs, by holding 3700 short put, or
(2) to close 3700 put and pay 16Rs, and write new 4000 put and earn 52 Rs i.e. net extra earning of 52-16 = 38 till expiry

Obviously, second is choice looks better then first.

Happy Trading

 

[TFL]

If that way...my choice was same as yours. I thought you were holding long PUT and saying 16 as max profit.

Thank you for the clarification.

 

[swargam]

ST Sir,

I sold 1 lot of 4300 CE June 2009 at 299 Rs Premium. I have a stop loss and profit aim of 50%. Is my strategy right ? Is there a possibility for me to book 50% profit or is it not reasonable ?

 

[Smart_trade]

ST Sir,

I sold 1 lot of 4300 CE June 2009 at 299 Rs Premium. I have a stop loss and profit aim of 50%. Is my strategy right ? Is there a possibility for me to book 50% profit or is it not reasonable ?

You can get 50% profit provided the Nifty remains below 4300 till about 15th of June.... If Nifty shoots uo....you will start loosing money...

The strategy is correct if your view on Nifty is stable or mildly bullish in June .... From your question you appear new in options..have you understood the risk if mkt shoots up ? Not sure whether selling options is a right strategy for new traders in a bullish market... But if it hits your stoploss,book your loss and get out of the position...
My best wishes for this trade ....

Smart_trade

 

[TFL]

Deleted....

 

[anandraos]

Does any one suggest me what to do!!!!!!!!!
I bought 3300 PE four @32 and today 4700 CE one @34 what is the best thing to do to get my money back and if possible make profit.

 

[Smart_trade]

Does any one suggest me what to do!!!!!!!!!
I bought 3300 PE four @32 and today 4700 CE one @34 what is the best thing to do to get my money back and if possible make profit.

unfortunately both your options contract are deep out of money and if they are May contracts ( which I presume they are ) there is little chance of recovering your investment...leave aside profits.

When the market goes against your view,it is necessary that we sell the options bought as early as possible to salvage whatever premiums we can get from these. Mostly people feel relaxed as it is an option and do not take quick action....

In this case I feel you have to accept that both options (particularly 3300 put ) are going to expire worthless....bad luck....

But never mind....look for a next trade .....

Smart_trade