Muinalis way of learning how to trade options

[muinali]

Muinali,

What are your thoughts for IDFC.In Dec series,where do you think this stock will close at?

hi prabhasingh
what should i say as single day remain in expiry. just watch previous higher-high (@169.2) as a strong support as yesterday it was able to close @170.5 in spot just above previous hh.if it breaks and stay below support then futher down.

 

[muinali]

Hello muinalis sir , i am following your thread too. Can you please tell me how you calculated implied value in your example of jindal steel before, and what risk free rate one should take to calculate implied volatility.

hi vishal
missed your post when you will watch closely stock chain from nse site you will get "IV" That is your implied value and i most of us take 8% risk free rate some are take 4%

 

[manikwadhwa]

- Volatility in the market.

IV=39.57
HV=14.32

- Time frame of our option trade.


4 Days Remain (current expiry 27 dec. 2012)

Does HV mean Historical Volatility?

and did how IV and HV help in buying PE of Jindal steel,as PE was considered on the basis of overbought of indiacator?

 

[muinali]

i am trading stocks on cash or fut as i decided to trade option from 1st week to 3rd friday generally
today's current position
short [email protected] in cash

 

[muinali]

booked [email protected] booked resst too as expiry sattlemnt day not taking any kind of risk

 

[linkon7]

VIX at 13.67... lower end of the trading band...

Bot 5900 straddle at 193 of jan series....!

does the trade sound right to you...?

 

[linkon7]

VIX at 13.67... lower end of the trading band...

Bot 5900 straddle at 193 of jan series....!

does the trade sound right to you...?

A discussion on this trade....

[2:32:45 PM] linkon7: when we have vix hitting the low like this
[2:32:52 PM] linkon7: we buy straddle or strangle
[2:32:57 PM] linkon7: keep it neutral
[2:33:11 PM] linkon7: like 5900 put long and 6000 call long
[2:33:32 PM] Murali R: ok.
[2:34:31 PM] Murali R: is there any parameters to decide when to buy straddle and when strangle?
[2:36:31 PM] Murali R: I generally wait for nifty to come near a BRN before buying/selling them. since u told 5900PE and 6000CE, how did u choose the stike price?
[2:36:53 PM] Murali R: if nifty is at 5900, then 5900PE and CE. if nifty between 5900 and 6000, then 5900PE and 6000CE. Is it like that?
[2:43:22 PM] linkon7: 5900 put is at 70
[2:43:30 PM] linkon7: 6000 call is at 70
[2:43:40 PM] linkon7: pair cost 140
[2:43:49 PM] linkon7: which is perfectly neutal
[2:44:02 PM] linkon7: buying 5900 straddle is bullish
[2:44:14 PM] linkon7: since total is 192 now
[2:44:26 PM] linkon7: 71+121
[2:44:35 PM | Edited 2:44:50 PM] linkon7: delta is more neutral if both legs have same price
[2:44:57 PM] linkon7: 121 is bullish
[2:45:11 PM] linkon7: so a scenario when both legs are equal
[2:45:22 PM] linkon7: will cause me to loose 10-15 points
[2:46:00 PM] Murali R: ok.
[2:46:16 PM] Murali R: the view is, it will breakout to one side in the next 2 weeks..
[2:46:33 PM] Murali R: shall I also buy it?
[2:46:38 PM] linkon7: its worth buying
[2:46:55 PM] linkon7: buy 5900-6000 if u feel it can swing both ways
[2:47:08 PM] linkon7: buy 5900 straddle if u feel bullish BO more likely
[2:47:38 PM] linkon7: if u buy 5900-6000 strangle..then keep sl at 100
[2:47:41 PM] linkon7: add at 120
[2:47:52 PM] linkon7: if u trade 4 pairs total
[2:48:09 PM] linkon7: then max loss is 6 K
[2:48:56 PM] linkon7: that a total of 4 lots each
[2:48:59 PM] Murali R: so it is like.. enter with 2 pairs and add 2 pairs at 120. exit all 4 at 100. on good side, exit the 2 pairs when in profit.
[2:49:02 PM] linkon7: including adds
[2:49:16 PM] linkon7: yes
[2:49:24 PM] linkon7: 2 lots each now
[2:49:33 PM] linkon7: 2 lots each if total is 120
[2:49:40 PM] linkon7: exit all for if 100 is hit
[2:51:47 PM] linkon7: if u decide to do 5900 straddle
[2:51:59 PM] linkon7: then add point is when both legs are trading at the same value
[2:52:21 PM] linkon7: and sl at 160 for the total
[2:53:29 PM] Murali R: nifty looks like ranging only... so will go with 5900PE and 6000CE itself.
[2:54:56 PM] Murali R: bought 100 each. together 141 for me.
[2:55:38 PM] linkon7: ok
[2:56:00 PM] linkon7: welcome to the lazy way of trading
[2:56:10 PM] Murali R:
[2:56:29 PM] linkon7: we dont have to pick a direction... to make money
[2:56:42 PM] linkon7: we are playing for expansion
[2:56:45 PM] Murali R: that is where I started....
[2:56:46 PM] linkon7: can go either ways
[2:56:59 PM] linkon7: and we dont care as such
[2:57:14 PM] linkon7: i got 1500 qty now.. each
[2:57:17 PM] Murali R: but when I started, I wasn't clear about the structure.. now I know why we are buying etc..
[2:57:23 PM] linkon7: expecting this to be a monster of a trade
[2:57:24 PM] Murali R: 1500 :O
[2:57:37 PM] linkon7: if this trade fails
[2:57:39 PM] linkon7: i loose 50 K
[2:57:44 PM] linkon7: roughly
[2:57:48 PM] linkon7: wont micro manage this
[2:58:19 PM] linkon7: its like..wait for both legs to ne equal
[2:58:28 PM] linkon7: will add 1000 more
[2:58:35 PM] linkon7: and then 160 is sl
[2:58:50 PM] linkon7: might end up loosing 25% of my capital on this trade
[2:58:59 PM] Murali R: [2:58 PM] linkon7:

<<< its like..wait for both legs to ne equalwhat is ne equal?
[2:59:16 PM] Murali R: that is too much of risk linkon... 25% of the capital...
[2:59:23 PM] linkon7: 5900 put = 5900 call
[2:59:30 PM] Murali R: but yeah.. u will earn 25 in one month itself
[2:59:43 PM] linkon7: this is a very long series
[2:59:48 PM] linkon7: 31st is expiry
[3:00:02 PM] linkon7: so time erosion is less
[3:00:12 PM] linkon7: trade is innitiated at the lower end of the VIX
[3:00:27 PM] linkon7: i can micro manage and trade myself out of a bad scenario
[3:00:35 PM] linkon7: gaps in either direction is welcome
[3:01:21 PM] linkon7: ur choice is proven right
[3:01:25 PM] linkon7: 5900-6000
[3:01:42 PM] Murali R: meaning? it can go either way?
[3:01:45 PM] linkon7: yes
[3:01:52 PM] linkon7: it was perfectly neutral
[3:01:57 PM] Murali R: it is actually going down.. but still in range right...
[3:01:58 PM] linkon7: mine was delta positive
[3:02:12 PM] linkon7: 6000 call cant become 0
[3:02:22 PM] linkon7: there will be time value cushion
[3:02:29 PM] linkon7: 31st is expiry
[3:02:39 PM] Murali R: Yeah.. lot of days to expire.

[3:09:21 PM] linkon7: 143 total now
[3:09:30 PM] linkon7: on 5900-6000
[3:10:19 PM] Murali R: Yeah...
[3:12:37 PM] linkon7: i am loosing on total
[3:13:02 PM] linkon7: my bias was long
[3:13:07 PM] linkon7: positon was more neutral
[3:13:27 PM] linkon7: for your 5900-6000 strangle
[3:13:36 PM] linkon7: my straddle was delta positrive
[3:14:03 PM] Murali R: Ok.
[3:14:07 PM] linkon7: my pivot is 5900
[3:14:15 PM] linkon7: ur pivot is 5950
[3:14:29 PM] linkon7: more it shifts away from pivot
[3:14:46 PM] linkon7: more delta one leg aquires
[3:15:26 PM] linkon7: theta... or time value.. wont come down in a hurry
[3:15:34 PM] linkon7: for the loosing leg
[3:16:00 PM] Murali R: . let us see how it goes.. as far as nifty is doing, it goes down one day and comes up next day...
[3:16:06 PM] linkon7: yaa
[3:16:19 PM] linkon7: closer price comes to my pivot of 5900
[3:16:24 PM | Edited 3:16:30 PM] linkon7: i loose more
[3:16:53 PM] linkon7: max loss near 5900 for me
[3:16:59 PM] linkon7: on jan futures
[3:17:14 PM] Murali R: Yeah... same here also... the more it swings back and back at pivot, we will loose like anything...
[3:17:22 PM] linkon7: yup

 

[muinali]

Yes sir ,absolutely right ,non directional strategy trader use long straddle strategy when the trend is neutral on the market direction and bullish on volatility.expecting the underlying price will show large movement in either direction( upside or downside).This strategy involves buying a call as well as put on the same underlying price for the same expiry and strike price.

while in long strangle involves buying an OTM call and buying an OTM put options

as you have full month expiry ahead sothat there is no fear of fast time value erosion.
you have limited your loss for full month expiry ,I thing probability toward win should be more than 80%.
Things to careoff
(1.) certainly time value decay is only part to care off as u paid premium too high .
(2.) chances of volatilty will bullish ahead not 100% sure.hope will not fall below

personally I like this both strategy as much as I hate short straddle and strangle.
i never traded strategy before but i will do certainly
if we see pay out chart
for long sraddle how it will pay off look like (prices are ignorable)

Uploaded with ImageShack.us

for long srangle how it will pay off look like (prices are ignorable)

Uploaded with ImageShack.us

 

[muinali]

- Volatility in the market.

IV=39.57
HV=14.32

- Time frame of our option trade.


4 Days Remain (current expiry 27 dec. 2012)

Does HV mean Historical Volatility?

and did how IV and HV help in buying PE of Jindal steel,as PE was considered on the basis of overbought of indiacator?

hi manikwadhwa
*yes, it is historical volatility
**how iv impact on price of option please go through with previous posts
***It is jindalsteel "historical volatility" for one and half months clearly shows "normally hv decreases chances of price increase "

Uploaded with ImageShack.us
dont take any position considering only trend direction in any script in option ?kindly go through with basic
**Subjects which will be spotted on
- What kind of option trader do I want to be?
- Direction of the market.
- Volatility in the market.
- Time frame of our option trade.
- Choosing the strategy.
- Margins for the strategy.
- Choosing the strike level/s.
- How to implement a strategy.
- Entering the market.
- Adjustment of our option trade.
- Stop loss of our option trade.
- Exit strategies for our option trade.
- Money management and risk reward ratio of our trade.
- What to do after the trade.
- Summary

courtesyanPickUp
http://www.traderji.com/options/66266-option-trading-danpickup.html

 

[DanPickUp]

**Subjects which will be spotted on
- What kind of option trader do I want to be?
- Direction of the market.
- Volatility in the market.
- Time frame of our option trade.
- Choosing the strategy.
- Margins for the strategy.
- Choosing the strike level/s.
- How to implement a strategy.
- Entering the market.
- Adjustment of our option trade.
- Stop loss of our option trade.
- Exit strategies for our option trade.
- Money management and risk reward ratio of our trade.
- What to do after the trade.
- Summary

courtesyanPickUp
http://www.traderji.com/options/66266-option-trading-danpickup.html

Dear Muinali

If you want to do so, then why not spot on specific topics you think you have to add and the rest is done with links to given posts. In that way you safe a lot of time on writing down such post, as I not mind when you would do it like that as you until now did great and will have my support. :thumb:

As you do trade options on shares, what about dear Monasonas question about trading calendars on them, as I am a pure option on future trader and that is a bit different compare to options on shares<

Good trading

DanPickUp