Low Risk Options Trading Strategy - Option Spreads
- Thread starter AW10
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Suppose we are long on NIFTY and want to carry this Bullish position to next day. To hedge, we have to create bearish position. For this purpsoe, we have two choice, either buy Put or Sell Calls and craete bearish option position. Both are giving us protection against the fall. As a option buyer, time decay is working against us. .but as a seller, it works for us.
I am not sure, how liquid are Tatamotors options, but I have traded spread in Reliance options. As spread are directional trade, u can get ATM or atleast 1 strike close to ATM option spread at decent reward/risk ratio... i.e. 1.5 : 1. i.e create a spread at 12 to 15rs cost for max value of 30 giving you return of 15 to 18 risk.
You can create OTM spreads as well but you might miss few points extra in slippage cause OTM strike's have wide difference in bid/ask price.
Hope this helps.
Happy Trading
I am not sure, how liquid are Tatamotors options, but I have traded spread in Reliance options. As spread are directional trade, u can get ATM or atleast 1 strike close to ATM option spread at decent reward/risk ratio... i.e. 1.5 : 1. i.e create a spread at 12 to 15rs cost for max value of 30 giving you return of 15 to 18 risk.
You can create OTM spreads as well but you might miss few points extra in slippage cause OTM strike's have wide difference in bid/ask price.
Hope this helps.
Happy Trading
Options settlement is of 3 type
- square-off in market at current price. No EOD settlement required but position is closed.
- Pre-expiry end of day excercise/ assigment - You place the order thru broker to execercise the ITM option. Broker forwards it to exchange and exchange randomly assign it to one of option writer. Exchange collects the money from writer/thru his borker,and forward it to your broker/to your acct.
- At-expiry day excercise/ assigment - On the day of expiry, exchange forecefully excercise all ITM option. Exchange randomly assign it to one of option writer. Exchange collects the money from writer/thru his borker,and forward it to your broker/to your acct.
All options are settled in cash in our mkt. but in US mkt, actual delivery of stocks is required for stock/etf options.
American style option (applicable to stocks in our mkt) can be settled using any of the 3 approaches.
European style options can't be excercised before expiry. Hence they are settled either by 1st of last approach given above.
Hope this clarifies some of the basics about settlement. Feel free to raise any further doubt.
Happy Trading.
- square-off in market at current price. No EOD settlement required but position is closed.
- Pre-expiry end of day excercise/ assigment - You place the order thru broker to execercise the ITM option. Broker forwards it to exchange and exchange randomly assign it to one of option writer. Exchange collects the money from writer/thru his borker,and forward it to your broker/to your acct.
- At-expiry day excercise/ assigment - On the day of expiry, exchange forecefully excercise all ITM option. Exchange randomly assign it to one of option writer. Exchange collects the money from writer/thru his borker,and forward it to your broker/to your acct.
All options are settled in cash in our mkt. but in US mkt, actual delivery of stocks is required for stock/etf options.
American style option (applicable to stocks in our mkt) can be settled using any of the 3 approaches.
European style options can't be excercised before expiry. Hence they are settled either by 1st of last approach given above.
Hope this clarifies some of the basics about settlement. Feel free to raise any further doubt.
Happy Trading.
That is upto you to findout by proper selection of strikes. If you go for
OTM spread and you might be able to generate 2.5:1 or 3:1 type of spread..but you need 200/300 points move to get maximmum benefit else it is difficult. Reward/risk always comes with tricky question of trade-off / probablity/ being right on many other factors etc.
As you start understanding more about options trading, it is possible to make money from market's money.. i.e. ZERO investment from your side..That gives u RRRatio of infinite. (I am keeping the secret with me here. Though I have discussed that startegy many times in TJ).
Happy Trading
OTM spread and you might be able to generate 2.5:1 or 3:1 type of spread..but you need 200/300 points move to get maximmum benefit else it is difficult. Reward/risk always comes with tricky question of trade-off / probablity/ being right on many other factors etc.
As you start understanding more about options trading, it is possible to make money from market's money.. i.e. ZERO investment from your side..That gives u RRRatio of infinite. (I am keeping the secret with me here. Though I have discussed that startegy many times in TJ).
Happy Trading
Hi AW10,
what need to be make out when Nifty Future is traded with 20 to 40 points in discount now a days.. is there any thing here where we can find some apportuniity and take advantage? please give your views.
further, how this will become zero or in premium? is there actually a risk to go short as here more chances for NF to climb faster than spot?
what need to be make out when Nifty Future is traded with 20 to 40 points in discount now a days.. is there any thing here where we can find some apportuniity and take advantage? please give your views.
further, how this will become zero or in premium? is there actually a risk to go short as here more chances for NF to climb faster than spot?
Reason for the discount here:
http://www.traderji.com/equities/39957-nifty-daily-price-analysis-15.html#post439429
http://www.traderji.com/equities/39957-nifty-daily-price-analysis-15.html#post439429
- Status
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