Nifty Futures Trading Part 2 (Positional)

[mitasatyajit]

praveen,

just thought of sharing this ...... usually buy options when liquidity is good and thats usually the case when the option starts trading near month.I have given lot of money to writers by buying their calls/puts to discover this. Now how do we know that the liquidity is less ? this will automatically show up in the spreads ... if the spread between bid/ask is greater than 1 rupee it means on most occasions our money will end up in the writers bank account.Also one more thing about options , it should be used as an instrument to capture volatility and not day-trading . Again consistent day trading opportunities(for option buyers) comes only when the market trends (usually the market is ranged)or when the options are closer to their expiry (this is so because the options will usually trade without any time value)...But i for one would prefer options only if i believe a sinificant break out will happen in a particular direction or to capture counter-trend opportunities or near expiry day to make money out of volatility else will stay with futures only as we can define s/ls for day trading in futures and not options...Lastly,it is difficult to position trade in options due to time decay while a 4200 call is quoting at 92 today even if we take a call that the nifty is going to bounce back 200 pts from here in 2 weeks even then the call may not bounce as its entire value right now is derived from time value.Hence we buy options for max 2-3 day play and not more than that....

Thank u RD for this explanation. It is very nice to see that an option gives 10 to 20 times money in a day or two. I personally played successfully for several times. Even I made Rs. 1 lakh in intraday with the help of only Rs. 3600/_, in two and half days Rs. 77000/_ with only Rs. 6000/_ and so on. Those are my success story. But the failure ---- horrible. I used to become helpless when I could not find any buyer in an in the money option at the time of market reversal. Buyer vanishes and spread increases very rapidly. If anybody knows that the market will reverse from here, who will buy that option. Most of the time I have given money with salute to the sellers of option. I have so many horrible loss experience in option buying.

But when I am on selling side it became comfortable ofcourse I have to hedge that with future otherwise it can become so dangerous. Time value may be fully utilised with this instrument when it is sold.

I have done so many experiments also by buy call and put both (I remember with SBIN). My bad luck, SBIN became sideways till expiry. If I could sell both Call and Put, sideways SBIN would give full sold amount without any question or panic.

So I earnestly request praveen and others, not to play option by buying, it may ruin ur fund unless u r so fast to decide and execute as an eagle. Better u play future, make money and then play option with selling mode. If u have not sufficiant money also for future margin, better keep aside the derivative market.

In recent past learn2trade was in trouble with buying option. He was scared of his position. I think he also has understood, how tough was the weekend two days.

Forgive and forget if I have given any talk/s which might hurt u.

 

[learn2trade08]

i will never forget the nosedive from 80 to 30 and rocketing from 30 to 97....all in the timespan of 3 trading sessions which spanned 5 days and definitely sounded like ages....
never will i fool around with options again.

Thank u RD for this explanation. It is very nice to see that an option gives 10 to 20 times money in a day or two. I personally played successfully for several times. Even I made Rs. 1 lakh in intraday with the help of only Rs. 3600/_, in two and half days Rs. 77000/_ with only Rs. 6000/_ and so on. Those are my success story. But the failure ---- horrible. I used to become helpless when I could not find any buyer in an in the money option at the time of market reversal. Buyer vanishes and spread increases very rapidly. If anybody knows that the market will reverse from here, who will buy that option. Most of the time I have given money with salute to the sellers of option. I have so many horrible loss experience in option buying.

But when I am on selling side it became comfortable ofcourse I have to hedge that with future otherwise it can become so dangerous. Time value may be fully utilised with this instrument when it is sold.

I have done so many experiments also by buy call and put both (I remember with SBIN). My bad luck, SBIN became sideways till expiry. If I could sell both Call and Put, sideways SBIN would give full sold amount without any question or panic.

So I earnestly request praveen and others, not to play option by buying, it may ruin ur fund unless u r so fast to decide and execute as an eagle. Better u play future, make money and then play option with selling mode. If u have not sufficiant money also for future margin, better keep aside the derivative market.

In recent past learn2trade was in trouble with buying option. He was scared of his position. I think he also has understood, how tough was the weekend two days.

Forgive and forget if I have given any talk/s which might hurt u.

 

[rajaram.dilipkumar]

first up thanks for taking time out and sharing your experiences ....
no ways mita, no hard feelings what so ever as we are all here to make money in whatever way we can and in that process learn and share a few personal experiences .... as to writing options i only find a few stocks like itc , hindlever and cipla which make money in writing on a consistent basis since they have been ranged for years . I fear writing options in nifty(again it is profitable for you because you are better than me at it) as due to the weightage of rate sensitives its always volatile and hence a better play for me buying it .Usually it is the doji days in which writing becomes profitable in nifty and those days are rare these days. Also with options , i agree that there are several ways to loose money while there are only a few ways to make it.

 

[moneygurukul]

praveen,

just thought of sharing this ...... usually buy options when liquidity is good and thats usually the case when the option starts trading near month.I have given lot of money to writers by buying their calls/puts to discover this. Now how do we know that the liquidity is less ? this will automatically show up in the spreads ... if the spread between bid/ask is greater than 1 rupee it means on most occasions our money will end up in the writers bank account.Also one more thing about options , it should be used as an instrument to capture volatility and not day-trading . Again consistent day trading opportunities(for option buyers) comes only when the market trends (usually the market is ranged)or when the options are closer to their expiry (this is so because the options will usually trade without any time value)...But i for one would prefer options only if i believe a sinificant break out will happen in a particular direction or to capture counter-trend opportunities or near expiry day to make money out of volatility else will stay with futures only as we can define s/ls for day trading in futures and not options...Lastly,it is difficult to position trade in options due to time decay while a 4200 call is quoting at 92 today even if we take a call that the nifty is going to bounce back 200 pts from here in 2 weeks even then the call may not bounce as its entire value right now is derived from time value.Hence we buy options for max 2-3 day play and not more than that....

For option buying, mean reversal strategies are more suitable than trend-following or break-out strategies. The obvious reason is volatility and its impact on option pricing.

Trend-following methods should better be used for option writing. Trading with 60-minute trend gives very good opportunities during the month to earn theta with both puts and calls. One more advantage of writing options with the help of 60-min chart is that the risk of initial poistion is lower than that with naked futures.(As delta <1)

 

[columbus]

i will never forget the nosedive from 80 to 30 and rocketing from 30 to 97....all in the timespan of 3 trading sessions which spanned 5 days and definitely sounded like ages....
never will i fool around with options again.

Last month for every trading gaining day we had FOUR trading losing days almost.(Gained in real sense)

 

[arnav_rulz]

But when I am on selling side it became comfortable ofcourse I have to hedge that with future otherwise it can become so dangerous.

ahh do u mean here that say nifty is trading 4000 then u sell a 4200 call and to hedge that you buy a future of nifty @ 4000 ?

Or are you taking about hedging in some other way ... ?

 

[mitasatyajit]

ahh do u mean here that say nifty is trading 4000 then u sell a 4200 call and to hedge that you buy a future of nifty @ 4000 ?

Or are you taking about hedging in some other way ... ?

Let us find an example :

We know in stock market risk is proportional to gain. In the above example risk is absolutely zero (wherever nifty closes at the end of the month - pl. see nifty points as header), but the fund requirement is huge in comparison to the profit u earned from it.

We may try different combinations, putting our maximum risk to gain more and/or change the combination during the month to raise our gain.

I request u to try out combinations and to show us the risk and gain involved in this type of trading.

 

[arnav_rulz]

Let us find an example :

We know in stock market risk is proportional to gain. In the above example risk is absolutely zero (wherever nifty closes at the end of the month - pl. see nifty points as header), but the fund requirement is huge in comparison to the profit u earned from it.

We may try different combinations, putting our maximum risk to gain more and/or change the combination during the month to raise our gain.

I request u to try out combinations and to show us the risk and gain involved in this type of trading.

Arre sir this is simple arbitrage, you dont getcalls trading at a diff rate than puts(same strike) when nifty future is also at the same strike... Atleast not a gap of 11points ? I have never seen that !!

Also many similar arbitrage can be done.. where actually you can find a bit difference....

Say Nifty is @ 4000, 4200 call is trading @ 50 and 4200 Put is trading @ 260... then you can simply

Sell the Future @ 4000, buy the call @ 50 and sell the Put @ 260. In this case you will earn 10 points wherever the market closes...


Its a simple maths formula --->

Difference btw Put and Call(same strike price) = difference btw the strike price and the Ongoing Future rate.

If its not equal you can arbitrage(earn the difference)...

Like my previous example

260(put) - 50(call) = 4200(strike) - 4000(Future rate)

There is a difference of 10 therefore you can earn that amount with 0 risk.

But its VERY rare we find these cases in the market... especially 10 points .. max you can get is 5 points...

Also if you are looking only for 5-10 points, again its not that there is no risk, As the prices move up and down soo fast and you have to execute 3 trades at the current rate,(caz you cant wait for price to come while u do arbitrage) there is a big chance that your strategy might get faltered due to the ups and downs....


I guess its not for ppl like us to make such trades with profit soo low while blocking our margin and also giving brokerage and stuff..

 

[mitasatyajit]

Arre sir this is simple arbitrage, you dont getcalls trading at a diff rate than puts(same strike) when nifty future is also at the same strike... Atleast not a gap of 11points ? I have never seen that !!

Also many similar arbitrage can be done.. where actually you can find a bit difference....

Say Nifty is @ 4000, 4200 call is trading @ 50 and 4200 Put is trading @ 260... then you can simply

Sell the Future @ 4000, buy the call @ 50 and sell the Put @ 260. In this case you will earn 10 points wherever the market closes...


Its a simple maths formula --->

Difference btw Put and Call(same strike price) = difference btw the strike price and the Ongoing Future rate.

If its not equal you can arbitrage(earn the difference)...

Like my previous example

260(put) - 50(call) = 4200(strike) - 4000(Future rate)

There is a difference of 10 therefore you can earn that amount with 0 risk.

But its VERY rare we find these cases in the market... especially 10 points .. max you can get is 5 points...

Also if you are looking only for 5-10 points, again its not that there is no risk, As the prices move up and down soo fast and you have to execute 3 trades at the current rate,(caz you cant wait for price to come while u do arbitrage) there is a big chance that your strategy might get faltered due to the ups and downs....


I guess its not for ppl like us to make such trades with profit soo low while blocking our margin and also giving brokerage and stuff..

I know that "its not for ppl like us to make such trades with profit soo low while blocking our margin and also giving brokerage and stuff.. ". I have given u an example. I requested u to show here examples of some combination u like, so that we the people can gain maximum with minimum risk and also with minimum margin requirement.

 

[arnav_rulz]

Thank u RD for this explanation. It is very nice to see that an option gives 10 to 20 times money in a day or two. I personally played successfully for several times. Even I made Rs. 1 lakh in intraday with the help of only Rs. 3600/_, in two and half days Rs. 77000/_ with only Rs. 6000/_ and so on. Those are my success story. But the failure ---- horrible. I used to become helpless when I could not find any buyer in an in the money option at the time of market reversal. Buyer vanishes and spread increases very rapidly. If anybody knows that the market will reverse from here, who will buy that option. Most of the time I have given money with salute to the sellers of option. I have so many horrible loss experience in option buying.

But when I am on selling side it became comfortable ofcourse I have to hedge that with future otherwise it can become so dangerous. Time value may be fully utilised with this instrument when it is sold.

I have done so many experiments also by buy call and put both (I remember with SBIN). My bad luck, SBIN became sideways till expiry. If I could sell both Call and Put, sideways SBIN would give full sold amount without any question or panic.

So I earnestly request praveen and others, not to play option by buying, it may ruin ur fund unless u r so fast to decide and execute as an eagle. Better u play future, make money and then play option with selling mode. If u have not sufficiant money also for future margin, better keep aside the derivative market.

In recent past learn2trade was in trouble with buying option. He was scared of his position. I think he also has understood, how tough was the weekend two days.

Forgive and forget if I have given any talk/s which might hurt u.

Im srry satya but i guess we went into a different direction from the 1 i meant to ask...

All i wanted to ask that when you said above that you dont prefer to BUY options these days for the reasons mentioned above, you said and you prefer to write the option but hedge it with a future....

So all i wanted to ask was How do You usually hedge your self using futures and selling an option(ie either call or Put) and utilise the time value to earn ...

*Btw as u asked in the above post about any of strategies... For that i have my own thread(not very famous ) for past 2 months... If i start posting links to that thread( for my strategies) it'll be very famous or atleast known to many more ppl caz i know that atleast every1 comes here