Low Risk Options Trading Strategy - Option Spreads

[simple_trader]

Thank you for your response.

Obviously I think market will expire at higher level, so thinking.

I have mentioned in another thread that NIFTY can give a final push to 5500 after this down move. Do not know where it will take support though.

Will consider this trade after market tests 200 DMA.

I think this move strength to climb towards 5500. fingers crossed!

happy trading!

 

[MaxX]

Hi Max,

Pls explain this with actual values(examples) for better understanding for new tradeds like me.
Thanks in advance.

I'm not much of the teacher type. I believe everyone has to find a method that suits them the best on themself.

In any case I am attaching a chart here. This is a monthly chart updated till Friday. You can see how price is moving in an upward channel and how on friday it closed near the 2nd last TL .. where I sold OTM puts.

 

[subratdas]

what should i buy now (option)

 

[Capricorn]

Yep.. around that. I'm a retail trader not a big(er) boy.. Execution is not a problem at all in near month options, more of an issue with far month options esp as I sell options not very close to the current price.

Anyway big boys also have to deal with the same orders/liquidity issues on the other side don't they.. from your post it seems that they have some major advantage other than just probably some order execution software.

Anyways are there really any market makers who provide both side liquidity for options in India? I'm asking this because esp. in morning times I see only bids on some options (for eg. 4500 put June today morning) and 0 sellers..

Nope, no market making system in India.

 

[simple_trader]

This position is giving 95 points profit now. Today total premium is 220.

If we do a down move and pull back to 5200 spot, then it can go down further.

5200 CALL PUT total premium is down to 178 today. total gain is 137 points.

Happy trading!

regards

 

[DanPickUp]

Thanks AW10

Not really, I dont consider always that market will remain sideways. but I keep in mind two things while going in to short strangle of +&- 100/150 stike price i.e
(1) I want to earn TV of option.. where my target of both option TV is 100 to 150 pts while selling. (not the full profit of 100 to 150.)
(2) I cover this stangle with either future buy/sell or option buy for any one side movement.

Hope I am clear.

what do you mean by "advanced trader"? If somthing special about this term. please educate me.

also I am expecting your views/ reply for my other questions. (ofcourse at your time)

regards

Hi by the way I am DanPickUp

You asked about the advanced trader. As I see your two points above, the way you trade and cover this " strangle ", it shows that you know what you do and I call this advanced. ( But this is my view and others have other views )

To question 4:

There is statistical Vola and there is implied vola : In general you should use the implied vola, if not specially asked by the definition of the calculators questions.

To question 3:

Why should the evaluation of the OI for futures be different to the one in options ?

To question 1:

Maybe I am wrong, but as far as I understood your question, with ticks you should be able to see that, if your software,broker supports that. You then should be able to chance the value of the ticks to what you want to see.

Take care

 

[rrmhatre72]

Hi All,

Share your opinion after today's ralley.
Is it end of correction & we will move towards 5400?
Or just a pull back & again we will go back to 5000level?
Is anyone seeing major change in trend?

 

[AW10]

Hi jaywings007 , Though you have already got many answers, here are my views/answers to your questions.

1. generally all trading portal/ software provides only best five buy or sell orders. can we find all the pending order any where? say 20-50-100... so on.?

I don't think as a retail trader we have access to such info. I don't know if big brokers / direct market access members have such privilege or not.
In my view, this list does not show market orders / or stop triggered mkt orders. These orders hit the exchange @ mkt when conditions meet. If we want to read the real happening
at exchange, then we need to focus on tick / time and sales data etc. My views might be limited here cause this is not my area of interest.

2. OI for options are very well understood... that writing increases the OI. but how to evaluate the OI for future..and estimate market movement accordingly. it can be long or short...?

I don't know what do u mean by writing increases OI. If I place order to sell 1lac strike 6000 May Call at 100 rs., that means I am writing so many options.. Will it change the OI of 6000 CAll ? Absolutely not.. cause I need some buyers at 100 rs to take these written piece of paper.. So OI is increased only when txn takes place and asked price.

Similarly, if I try to sell NF may contract at limit price of 5500 when mkt is at 5140 (same as I am trying to write a contract). My order remains in queue and OI has not impacted.

I don't think there is any difference in interpretation of OI for a particular strike of option or OI of futures . Difference is mainly due to strike prices.. In NF, you can trade contract only at current price, whereas in options you can trade contracts at various other strikes. Otherwise, in simple terms, OI is nothing but amount of Sum of (all open Long positions buy positions + all open short position ) in the market /2).

3. generally I go for short strangle (in the money) with total credit of approx 400 points of nifty. can you please suggest how to get good pricing of option while entering.. any strategy pls?

Jaywings, It is upto you to define your strategy. Volatility / mkt sentiment/ liquidity / etc plays role in option's trading price above or below the calculated value as per option pricing model.
By putting in some effort on observations, you might be able to squeeze extra penny / 1 or 2 points here and there.. That is like trying to find arbitrage opportunity. I think biggest difference will come
when u start understanding option synthetics / equivalent option strategy for the one u are trying to use will make difference.
eg - if u are selling 100 points OTM strangle and collecting 400 points, that gives BEP of 500 points on either side. Maybe if you sell ITM options on both side (Short Gut strategy which has similar risk profile as Short strangle ), you might be able to get 3/4 points extra. Though you will have to look at other factors like holding period, margin requirement etc..

4. generally all sites and portals provide option calculators. I never been able to understand the actual application of it. what should be the volatility to be considered? I read often 30%.. i.e 0.3 its OK? can you please alobrate the application of it as a whole.?

Let me give u pointer to figure out yourself whether this question is really worth spending time or not..
- take option calculator and key in some volatility number
- now keep changing volatility in step of 3 or 5.. and see the impact on option price.
(If you want you can share this with others).

Personally, I would use IV as suggest by DanPickUp( volatility that is currently present for ATM strike options), to find price for other options. Keeping in mind that volatility for far OTM option may be different from ATM strike.
In absence of that, as in India, we mainly trade contracts expiring in 1 or 2 months .. i.e. max 40 or 50 trading days.. So you can calculate Historical volatility over last 50 or 100 days and use that as better reflecting of current volatility.
Though books might say to use annual historical volatility (HV) , but I can't digest the reason behind Using annual volatility for next 20 days period. If mkt moves 50% in a year.. does that mean it will move 50% in next 1 month ? Hence I prefer shorter term HV in calculation.

Hope this helps..
Happy Practical Trading.

 

[balaj78]

hi,
I have a dout in options excersise .As index options are excersied only at the end of the contract period .
for eg iam buying 5000 ca @ rs 100 and at the time of expiry .Nifty went 5300 now my 5000ca would be rs 300.
suppose my system fails or some other problems rasied and i could not trade on expiry when should i excersise .
whether it will be automatically excersied or i have to tell the broker to excersise the option .

Normally we can get the right price ,and i dont have a chance for excersise .but still i want to know the procedure for excersise .
regards
bala

 

[nac]

hi,
I have a dout in options excersise .As index options are excersied only at the end of the contract period .
for eg iam buying 5000 ca @ rs 100 and at the time of expiry .Nifty went 5300 now my 5000ca would be rs 300.
suppose my system fails or some other problems rasied and i could not trade on expiry when should i excersise .
whether it will be automatically excersied or i have to tell the broker to excersise the option .

Normally we can get the right price ,and i dont have a chance for excersise .but still i want to know the procedure for excersise .
regards
bala

Don't worry... It will automatically get exercised. I have never tried options, but our friends were saying don't leave it to get exercised. Better cover it even if the price is just 5 paise. Cover it. Reason is you would get charged higher when it gets exercised.