Low Risk Options Trading Strategy - Option Spreads
- Thread starter AW10
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Sumitdasjoshi,
With mkt at 5135, 5100 put has only timevalue, and 5100 call has 35 rs of Real value and remaining time value.
i.e. out of 134 rs of price today, there is real value of 35 rs. i.e 100 rs of time value. i.e. for remaining 10 days of the contract, you have almost 10 rs per day of timevalue decay in your hand.
By closing 5100 Call and Selling 5200 call, you will have to see, how much of real timevalue are you going to get.
Though your BEP will shift further up, but may not be much. So compare the facts, take into consideration the brokerage etc and make right decision.
My preferred approach (though you can try something else) will be - Monitor the "profit left on table" very closely and decide a limit that I am ready to give back to mkt. Say out of 43 rs of current profit, I may give back 18 rs. and keep 25rs of profit. In that case, I decide to close my position when value of position, goes up to 150 or so.
Rather then tying myself to existing trade and trying to make few extra points by showing my option smartness, I will prefer to be free and move on to better opportunity in next series.
I think my above example will answer this question. Simple step to decide the timevalue per Day is..
1) Find what is time value hidden in option price
2) Divide that by days remaining
3) In case of short straddle/strangle you have to take timevalue of both legs as I have explained above.
As you reach the expiry, finding that much of timevalue is not possible.. but if you write far month contracts, then it is possible to start with 5 to 7 rs per day of decay which later on grows to 10/12 rs.
Note - This is very crude way of doing the calculation, cause it is assuming their will straightline decay in time value, but in reality the decay is exponential. But I use it almost always cause
of its simplicity.
Happy Trading
With mkt at 5135, 5100 put has only timevalue, and 5100 call has 35 rs of Real value and remaining time value.
i.e. out of 134 rs of price today, there is real value of 35 rs. i.e 100 rs of time value. i.e. for remaining 10 days of the contract, you have almost 10 rs per day of timevalue decay in your hand.
By closing 5100 Call and Selling 5200 call, you will have to see, how much of real timevalue are you going to get.
Though your BEP will shift further up, but may not be much. So compare the facts, take into consideration the brokerage etc and make right decision.
My preferred approach (though you can try something else) will be - Monitor the "profit left on table" very closely and decide a limit that I am ready to give back to mkt. Say out of 43 rs of current profit, I may give back 18 rs. and keep 25rs of profit. In that case, I decide to close my position when value of position, goes up to 150 or so.
Rather then tying myself to existing trade and trying to make few extra points by showing my option smartness, I will prefer to be free and move on to better opportunity in next series.
I think my above example will answer this question. Simple step to decide the timevalue per Day is..
1) Find what is time value hidden in option price
2) Divide that by days remaining
3) In case of short straddle/strangle you have to take timevalue of both legs as I have explained above.
As you reach the expiry, finding that much of timevalue is not possible.. but if you write far month contracts, then it is possible to start with 5 to 7 rs per day of decay which later on grows to 10/12 rs.
Note - This is very crude way of doing the calculation, cause it is assuming their will straightline decay in time value, but in reality the decay is exponential. But I use it almost always cause
of its simplicity.
Happy Trading
With mkt at 5135, 5100 put has only timevalue, and 5100 call has 35 rs of Real value and remaining time value.
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can anybody pls give the significance of the real value and the time value for option selling .
Is it that i should sell a option with maximum time value and less real value ?
Thanks
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can anybody pls give the significance of the real value and the time value for option selling .
Is it that i should sell a option with maximum time value and less real value ?
Thanks
abigbull, You are stepping into the area of option pricing. Please read some material on that to get complete knowledge.
Yes, you are right in saying that we shd sell option with high time value..but those options carry higher risk too.. ATM options have highest timevalue.. but there is reason behind.. cause it has highest probablity of getting ITM, as well. A option which is 100 points away cause market has to travel 100 points for this option to gain any real value (intrinsic value). And hence poeple pay less premium i.e less timevalue for this.
So as a option seller, it is the tradeoff between the return, risk, probablity before we decide on which option to sell.
Happy Trading
Yes, you are right in saying that we shd sell option with high time value..but those options carry higher risk too.. ATM options have highest timevalue.. but there is reason behind.. cause it has highest probablity of getting ITM, as well. A option which is 100 points away cause market has to travel 100 points for this option to gain any real value (intrinsic value). And hence poeple pay less premium i.e less timevalue for this.
So as a option seller, it is the tradeoff between the return, risk, probablity before we decide on which option to sell.
Happy Trading
well adity in thish month i blow my acount a loss of 15 thousand in nifty future because i did not trade whith the stop loss now i am trading in option buy making it a strangel or spred so i dont have to loose much in option if your knowleadge is good you earn more a loose less right now my goal is to get mt 15 thousand rupees backe to my account now i have strangel and i trade in mini nifty when i see the good chanse whith traling stop loss so much it is going great i am wating for expiry to see if i can get my 15 thousand back oor not .i will let you know my progres in expiry
Simple_trader, What is your trade plan ? How well you know the behaviour of this strategy from now till expiry ? Has your view about market changed ?
These are kind of questions, you need to ask yourself and find answers of them.
Please check following post at start of this thread where I have added few lines to give guidence about planning the Exits.
http://www.traderji.com/options/305...ading-strategy-option-spreads.html#post333543
by the way, have you written these 2 options.. or bought them.
Cause if you have written these two options (short strangle strategy) then you are in profit cause u sold something in 200 which u can buy back in 175 rs today and pocket 25rs of profit.
For such strategy, the profit comes from sitting patiently on your position and do nothing. Let time work for you. And if you can't show the patience then probably u are trading wrong strategy. So, just plan your exits properly, and you don't have to worry about day to day movement of such strategy and just enjoy the ride.
Happy Trading
These are kind of questions, you need to ask yourself and find answers of them.
Please check following post at start of this thread where I have added few lines to give guidence about planning the Exits.
http://www.traderji.com/options/305...ading-strategy-option-spreads.html#post333543
by the way, have you written these 2 options.. or bought them.
Cause if you have written these two options (short strangle strategy) then you are in profit cause u sold something in 200 which u can buy back in 175 rs today and pocket 25rs of profit.
For such strategy, the profit comes from sitting patiently on your position and do nothing. Let time work for you. And if you can't show the patience then probably u are trading wrong strategy. So, just plan your exits properly, and you don't have to worry about day to day movement of such strategy and just enjoy the ride.
Happy Trading
Dear AW10,
thank you for your reply. It is written position (short strangle). I do not have much knowledge on option trading, but I do trade them.
My idea was weekly chart support 5000 odd level and resistance around 5300. Hence I thought 5100 PUT and 5300 CALL will decay most when market is at 5150.
I am trying to learn from your thread. I have never held position for very long time
Keep teaching us and pointing flaw in real life examples.
regards
thank you for your reply. It is written position (short strangle). I do not have much knowledge on option trading, but I do trade them.
My idea was weekly chart support 5000 odd level and resistance around 5300. Hence I thought 5100 PUT and 5300 CALL will decay most when market is at 5150.
I am trying to learn from your thread. I have never held position for very long time
Keep teaching us and pointing flaw in real life examples.regards
right now i am holding this 5100 ce and 5100 pe i have sold both of this at a com bine rate of 177 rs sice the market is in the 5080 to 5150 rage for the hole week so right now the the prise is 134 i am in profit of 43 rs and it looks like market will be going up or say it will reach 5250 so i am thinking i will buy back my 5100ce and going to sell 5200 ce
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Hi sumitdasjoshi
This was ur quote as mentioned above , Here my query was how did u anticipate that the market is gonna go up when during those days when u wrote this thread it was moving side ways .
thanks in advance
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Hi sumitdasjoshi
This was ur quote as mentioned above , Here my query was how did u anticipate that the market is gonna go up when during those days when u wrote this thread it was moving side ways .
thanks in advance
Yes it take me to understand almost one year to know the formula what market will going to do it has succes ratio of 85 % where i can tell you what market is going to do but i have a problem of 25 % which is struk me very hard so i am working on that also but as for as my knowleadge i think now market is not going to DO much till expiry so NO need to panik now i think it will expire in close to 5200 level.
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