Low Risk Options Trading Strategy - Option Spreads

[vssoma]

dear aw10,
please take a look at the picture below.

this is a snap shot of nifty options at EOD today. if we take EOD data, nifty closed @5230 ( +26)
normally put should be in -ve and call should be +ve, but below some calls also in -ve,
can u please, explain the reason and how to find that elements ( if market is +ve call must be in +ve and put must be -ve, vice-versa.) correct me if i am wrong.

 

[abigbull]

Each of us has to learn to fly
------------
Lovely Quote . I will surely read all the posts and definitely let u know as well

 

[AW10]

Swamy, this where the reality of option pricing comes in place. People are not fool to pay higher premium for OTM options, just because underlying is going up.
Those OTM option price discount the fact - "probablity of those options ending up in profit before the expiry". If people feel that nifty has very low probablity of reaching
5327 (Brkeven price for Long Call 5300 position), or 5407 (BEP for Long call 5400 poisition) then they will not pay higher price to buy them.

This effect is more prominent as we reach expiry. These OTMs will start loosing there values at much faster rate.

Plz read more on Option pricing to understand this in more details..

Happy Trading

 

[nayarock]

Hi

I have a doubt. Can anyone tell about P/C ratio and its impact on Index and stock options.
1) In India does they really help to measure short to near term sentiment of Index and stock options using P/C ratio?
2) As the time decays, and options comes to near expiry date, few traders write the options due to this reason can we take P/C ratio as accurate?
3) how do we calculate P/C ratio , daily wise total OI or total OI till date?

Thank you

 

[AW10]

nayarock,

In my view, Put Call Ratio is helps in understanding market internals to some extent.
But it is not very reliable in defining a trading system on it (or atleast I have not be able to define it).
So use it to support your trading.

2) As the time decays, and options comes to near expiry date, few traders write the options due to this reason can we take P/C ratio as accurate?

It is one way to look at the option trading. But there are people with different opinion too. Due to higher rate of timedecay near expiry, it helps in collecting faster profit. So there are traders who enjoy that fast pace of time decay near expiry.

3) how do we calculate P/C ratio , daily wise total OI or total OI till date?

Depending on what you is your purpose, you can adopt different approach to calculate PCR. In simplest term Nifty PCR = (total number of Put OI at all strike prices) /(total number of Call OI at all strike prices)

but if someone buys huge qty of of put at 4500 strike by paying few paise on it.. whole picutre is distorted.

You can also calculate PCR for a particular strike price, by taking ratio of Put OI and Call OI at that strike.

Plz check out following 2 threads on this topics. You can google and find more info on the net.

http://www.traderji.com/options/34089-tracking-put-call-open-interest-10.html
http://www.traderji.com/options/38931-tracking-nifty-pc-oi-w-r-t-option-writer.html


Happy Trading.

 

[nayarock]

Thank you AW10 for Instant reply and explanation.

 

[braj1112]

:clap:thanks :clapping:

 

[ashish1802]

Hi ,

m starting to learn to trade options... If i m of the view that nifty will be range bound and in between 5100 and 5400 then do i sell 5100 put and sell 5400 call..
will this be a good strategy?
(sorry if the questions seems stupid )

 

[vssoma]

dear ashish,
i am also new to options. as of my understanding selling is unlimited risk, in your strategy, if you buy indteaded of selling both call and put,, it'll be turn to unlimitted profit and loss is limitted to your premium only.
seniors....correct me if i am wrong.
tnx,

 

[ashish1802]

dear ashish,
i am also new to options. as of my understanding selling is unlimited risk, in your strategy, if you buy indteaded of selling both call and put,, it'll be turn to unlimitted profit and loss is limitted to your premium only.
seniors....correct me if i am wrong.
tnx,

u r rite in saying that by seling option u have unlimited liability..but isnt it possible to square off after u think ur sl is hit? (i am asking a question n not commenting)

Again seniors pls explain me one thing... Today mkt was in marginal red...still the % change in put of 5200 and 5400 was different..how come.
5200 put remained stagnant around 5.5 whereas 5400 put went from 79 to 89.
I know 5400 put is in the money n 5200 is out of money but the change in option price is very different...I would have made money if i had bought 5400 put instead of 5200...here even after correctly identifying the trend i chose wrong strike price :annoyed:

Can seniors pls explain why this happened, n is it that u always buy in the money options ?