Low Risk Options Trading Strategy - Option Spreads

[AW10]

Re: Volatility

Sorry Anmol, I haven't used it recently. Better to log the issue with the Samoasky website (either forum or support section there). Probably they will be able to sort it out.

http://www.samoasky.com/community/

Happy Trading

 

[pannam01]

Hi AW10,

I have a bit confusion regarding bonus share.
let us assume that infosys announces bonus share 1:1 today evening after market close.
now infosys price is 2649. what would happen in option side, when market open tomorrow?
today I have bought 2 lot of call option 2800 @ 21 & 1 lot of put option 2600 @ 41,

Could you please guide me?

 

[AW10]

In such cases (called corporate actions), the stock exchange will make adjustment to F&O contracts. These changes come in to force from the day these actions are implemented i.e. next trading day after record date. Date of news announcement has no effect on it. Though based on the news, people start finding arbitrage opportunity and encash on it. But it settles down over a period of time.

In case on 1:1 bonus, number of share will double in the market and hence trading price gets halved. So the Lot size of contract will also double and trading price of option will come down to half. Take an example

2700 call with lot size of 200 ( 2700*200 = 5.4Lac worth) traded @ 50 rs. * 200 = 10k.
i.e with 10k you are controlling 5.4 lac of infy stocks.
After bonus implementation
1350 call with lot size of 400 (1350 * 400= 5.4lac) traded @ X rs * 400 = 10k.
which gives u X = 25 rs price of option. As the lot size has doubled, your investment of 10k remains unaffected.

Till the bonus record date, it is business as usual with not change in trading. Your positions will gain/loss as they were anyway doing till yesterday or before bonus announcement.

Hope this helps.

You can refer to following link to NSE site that explains in detail about the adjustment in F&O contracts.

http://www.nse-india.com/content/nsccl/nsccl_focorpactions.htm

Happy Trading

 

[vssoma]

TV18 Chart -
In my view, reward risk ratio favours a short trade. Short at 80 with stop at 82.5. for target of 73. i.e 7 points reward for risk of 2.5 points.. 3:1 RRR is attractive on any day.
Market is in OB area, The stock is making flat top at 80 range from last 3 days indicating sellers sitting above 80.

Happy Trading

dear,
if i want to shot tv-18 @ 80, in options, which strike price is better for me 75 or 80 and one more thing, is buying put better or selling call and why? ( when my view is only negative, i think no need to combine them)
aw10, correct me.
thank you

 

[trader.trends]

dear,
if i want to shot tv-18 @ 80, in options, which strike price is better for me 75 or 80 and one more thing, is buying put better or selling call and why? ( when my view is only negative, i think no need to combine them)
aw10, correct me.
thank you

Buying puts is not the same thing as shorting calls. The two are different kinds of trades. For one the risk reward in each is different. When you buy a put, the risk is limited to the premium paid and the rewards are theoretically unlimited. When you sell a call, the rewards are limited to the premium received and the risks are unlimited if the market moves up. Second for buying a put the amount of money blocked is only for the premium paid whereas when you sell a call the margin equivalent to a lot of future is blocked. Third there is no need to worry about MTM when buying a put whereas when you sell a call, MTM is a concern. Fourth when you buy a put you control the exercising of the option whereas when you sell a call you have the risk of the option being exercised. Fifth when you buy a put the position cannot be closed out by your broker whereas when you sell a call the position can be closed by your broker if there is not enough MTM.

Hope that helps in understanding the difference between buying a put and selling a call.

Coming to the specifics, the higher strike price put will be costlier than the lower strike one. Where do you expect it to go if it breaks 80 in spot? How many days to expiry? How liquid is the option? What level of profit will satisfy you? what level of risk are you willing to take for the profits expected (RRR). Answering these questions will help you decide whether to go for 80put of 75 put.

 

[tinkumani]

iam new to stock market , kindly let me know how to trade in option sir

 

[itprodeepak]

dear all,

please answer query.

I have basic knowlede of option but confused.

I have bought 500 4900 PE Nifty April Month at Rs 5.45. If I put these value in option software I get breakeven as 4895. But how this possible.

Currently Nifty at 5300 and 4900 PE option at Rs 12. I am already making profit. Why then Breakeven point of 4895. Please clarify.

My cost: 500*5.45 = 2725
Commission = 1140
Total cost = 3865

Current earning: 500 * 12 = 6000 (already cost recovered) then why brekaeven at 4895.

please help

Dear Adi,

breakeven @ 4895 means if on expiry day nifty is @ 4895 than your put value will be 5. which is your cost. as of now this PE is in premium so you can book out your PE in profit. or wait till expiry however, if till expiry doesnt go towards 4900 or below it you will start loosing this premium and will loose your entire money. So, better you can book profits as it is double now from your buy price. and enjoy the gains

Thanks,
Deepak

 

[AW10]

dear all,

please answer query.

I have basic knowlede of option but confused.

I have bought 500 4900 PE Nifty April Month at Rs 5.45. If I put these value in option software I get breakeven as 4895. But how this possible.

Currently Nifty at 5300 and 4900 PE option at Rs 12. I am already making profit. Why then Breakeven point of 4895. Please clarify.

My cost: 500*5.45 = 2725
Commission = 1140
Total cost = 3865

Current earning: 500 * 12 = 6000 (already cost recovered) then why brekaeven at 4895.

please help

Have u realised, that u are paying almost 40% of purchase price as commission.. And this is going to hit you also when you are going to square-off the position. Keep that in mind before calcaulating your false profit of 100%.

As mentioned by Deepak, 4985 is BE at expiry. It doesn't show the movement in price as market moves from now till expiry.

As long as market is falling, ie your view is bearish on mkt, this option will continue to increase in value. So think about your view on the market before deciding to close the position. It is fine balance between greed and reality.. or repenting later that you booked profit at 100% gain..while it has gone to 400% in next few days.

Use your judgement and take your own decision.

Happy Trading.

 

[abigbull]

[

Coming to the specifics, the higher strike price put will be costlier than the lower strike one. Where do you expect it to go if it breaks 80 in spot? How many days to expiry? How liquid is the option? What level of profit will satisfy you? what level of risk are you willing to take for the profits expected (RRR). Answering these questions will help you decide whether to go for 80put of 75 put.[/QUOTE]

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Dear TT

I had a query abt how much position do i take for a month . Say a Buy position or a Write Position I understand when i say abt positions it depends on the individual person , the risk profile or how deep the purse string allows for a person . But for a layman person like me i just wanted to understand what can be a ideal or a more general approach .

Say i Write 100 quantity PUT or CALL Roughly i will block 40K as security
Then i will buy some naked Put / CAll to cover that position and hence it will deplete my account by say 7K.
Just wanted to know the recommended kind of positions to be held . This question is analogous to the advised point that we should not have more than 10 Stocks in our portfolio so as to manage the buy / Sell / SL for the existing stocks in our Demat profile .

 

[simple_trader]

Are we going to see a range bound move in next week and then a range expansion in last two weeks? i feel so. All in all, i feel option writing would be dangerous by end of next week. May be buying will be favorable. My own thinking.

happy trading!