A Question to AW10 and other Option Spreads Maestros

[OptionQuant]

JallanKit,

I have gone through that route and burnt my fingers real bad. Theoretically, options away from strike give better returns than ATM options. However, if you guess is wrong, you can lose money pretty fast too. Also, Also, options far from strike have a far higher rate of time decay in % terms. Hope that helps

 

[AW10]

Consider this situation..

U trade in 30 calls(buy or Sell) and end up with +200 points nifty.. This info is without brokerage and taxes..

Next the thing is that if u happen to calculate avg profits per trade it comes to 7 points profit(7points*30 trades = 210 points)

Wat i am asking u is if we trade all NEAR ITM calls as per the BUY/SELL signals and as per 30k is investment in one lot of nifty and if we enter into say 6 to 7 lots of options for every one lot of nifty(making the investment value to 30K in options), will it not fetch better results..

I think, you are not addressing only 1 side of the coin ie. profit side of it. Try to look at other side too. Yes, you can buy 6 lots of options in money that u will put as margin for 1 nifty future, but that also increases your risk profile. With 6 lots in hand, and full capital invested in 1 position, I am sure, you would be watching DOW whole night and praying that nifty shd not gap open against your position and take away 50 to 60% of your acct.

IMO, Trading is game of statistics, probability, risk management and psychology. Hence trader need to address all of them to get consistent results.

Regarding trading ITM/ otm options, It depends on your strategy and market conditions.
If you can catch the direction right, then OTM option give better reward (they have higher gamma). If market stays sideway, then ITM option might save you, but OTM will keep loosing premium. And if market goes against you, then ITM will loose lot more then OTM cause they have higher Delta value. (I am assuming that you understand options greeks, else it is worth spending time to know them. Specailly if you are serious about option trading).

In my observation, people do not give enough importance to market condition before selecting option position. IMO, all strategies work under some market conditions and all of them fail in some other mkt conditions. Hence it is important to know the best time to use A strategy. As a trader, we need to address that while developing our trading system.

Hope this helps.
Happy Trading

 

[DanPickUp]

Hi jallanankit

Delta and theta are two main points you have to consider. Did you check your idea on a matrix?? ( One future against many lots of options or vice versa !! )

The next point you have to consider: What about your filled when buy and sell your options? Implement this point in your theory.

Tc

DanPickUp

 

[jallanankit]

I think, you are not addressing only 1 side of the coin ie. profit side of it. Try to look at other side too. Yes, you can buy 6 lots of options in money that u will put as margin for 1 nifty future, but that also increases your risk profile. With 6 lots in hand, and full capital invested in 1 position, I am sure, you would be watching DOW whole night and praying that nifty shd not gap open against your position and take away 50 to 60% of your acct.

IMO, Trading is game of statistics, probability, risk management and psychology. Hence trader need to address all of them to get consistent results.

Regarding trading ITM/ otm options, It depends on your strategy and market conditions.
If you can catch the direction right, then OTM option give better reward (they have higher gamma). If market stays sideway, then ITM option might save you, but OTM will keep loosing premium. And if market goes against you, then ITM will loose lot more then OTM cause they have higher Delta value. (I am assuming that you understand options greeks, else it is worth spending time to know them. Specailly if you are serious about option trading).

In my observation, people do not give enough importance to market condition before selecting option position. IMO, all strategies work under some market conditions and all of them fail in some other mkt conditions. Hence it is important to know the best time to use A strategy. As a trader, we need to address that while developing our trading system.

Hope this helps.
Happy Trading

..thanks a lot for taking time to write back...

Now addressing different things as u say that i mentioned just the profit side of it, the thing i mentioned was 200 points positive on net basis (for example 600 points profit and 400 points loss)...

Next abt carrying fwd positions overnight, i dont think I will like to do that, considering the effect of depreciation element due to time decay.. Instead whenever tht system gives a carry fwd overnigh call, i will change position from options to futures on the same day around 3.25 pm sort of time..

Regarding catching the market direction right, i would say that it has been left on the system based call..(since the system has been able to give 200 points per month on consistent basis..)..

Next abt trading in ITM or OTM options.. we will discuss that in more detail if u guys consider the above points successful...

 

[jallanankit]

Hi jallanankit

Delta and theta are two main points you have to consider. Did you check your idea on a matrix?? ( One future against many lots of options or vice versa !! )

The next point you have to consider: What about your filled when buy and sell your options? Implement this point in your theory.

Tc

DanPickUp

hiii...


Pls shed more light on the matrix setup which u r talking abt..

 

[DanPickUp]

hiii...


Pls shed more light on the matrix setup which u r talking abt..

Hi

May I miss interpreted your idea:

Again: You want to go long and short with options and you trade at the same time one Nifty future ?

If you only want to go long or short with options, so it is just directional trading and the matrix is not really needed. ( Margin ? )

If you trade a bunch of options and at the same time just one future, you should check your delta and theta immediately. ( Maybe I miss interpreted that part of your idea )

Tc

DanPickUp

 

[jallanankit]

Hi

May I miss interpreted your idea:

Again: You want to go long and short with options and you trade at the same time one Nifty future ?

If you only want to go long or short with options, so it is just directional trading and the matrix is not really needed. ( Margin ? )

If you trade a bunch of options and at the same time just one future, you should check your delta and theta immediately. ( Maybe I miss interpreted that part of your idea )

Tc

DanPickUp

Buddy now i m not geting ur msg clear..

I m not trading Futures and Options together..
I am asking abt trading in options only...

Futures will be used only if i need to keep overnight positions(square off from options and entery in futures at 3.25).. this is just to save the time decay effect..

Hope i m clear now..

 

[Placebo]

On 26-08-2011 Market Price of NIFTY was 4747.8 where

4700 CE was priced at 194.1 where Intrinsic Value was 47.8 And TV 146.3
4800 CE was priced at 137 where Intrinsic Value was 0 And TV 137
4900 CE was priced at 91.25 where Intrinsic Value was 0 And TV 91.25

Today(29-08-2011) the Closing Price was 4919.6

4700 CE was priced at 292.8 where Intrinsic Value was 219.6 And TV 73.2
4800 CE was priced at 217.5 where Intrinsic Value was 119.6 And TV 97.9
4900 CE was priced at 152.85 where Intrinsic Value was 19.6 And TV 133.25

Why has the Time Value of the 4800 CE decreased as soon as option went in the money ? And why did the 4900 CE yield the best percentage returns and increase so much in time value ?

Can anyone help me out

Cheers

 

[OptionQuant]

Placebo,

TV of an option depends on how far the strike price is from current price of underlying. As an option gets AT the money, TV is maximum. As it gets more and more in the money, TV decreases, but IV increases and option price increases.

The BEST yields of TV occur when an option that is deep in the money or Deeop OTM suddenly becomes AT the money

Hope that helps

 

[vd1989]

heloo
i do't know mutch more about option trading. so my few quest. are:-

1- on 2nd sept.2011 purchase a sbin call 1 lot 2000 strik price with 55Rs. expiry date 29sept2011 and sold that lot at same day at 60Rs.
MY question is, after expiry date 29sept2011 it will rise more than 2000Rs then what?
2- if buyer of my call wish to buy that share, he calledout to me, i have obbligation to deliver that share. but i am also buy that from someone can i calledout him.
3- suppose on 2nd sept.2011 purchase a sbin call 1 lot 1850 strik price with 130Rs. expiry date 29sept2011. and when sbin share price gose to 2020 i wish to buy that share and sell them on same day. CAN IT POSSIBILE? what breakpoint when i am making profit?
4-sbi is at 1994. The following are sbi options traded at following quotes.
Sept2011
strike price 1850 with 130Rs. expiry 29spt2011
A trader is of the view that the sbi will go up to 2010 in same day but does not want to take the risk of prices going down. Therefore, he buys 10 options of 29sept2011 contracts at 1850strike. He pays a premium for buying calls (the right to buy the contract) for 130*125= Rs 16,250/-.

In same day the sbi goes up to 2022. He sells the options or exercises the option and takes the difference in price which is (2022-{1850+130primium}) * 125(market lot) = 5250per contract. Total profit = 52,500/- (5,250*10).
IT IS POSSIBLE IN SAME DAY, IT IS ALLOWED?
Please someone answer.