Option Pricing
- Thread starter markidharhai
- Start date
Gamma should be above zero for things to move.Note that Delta range is between 1 & 0 whereas gamma would be seen positive only between 0.97-0.93 to 0.03-0.07..If delta goes beyond these points,gamma would be zero and thus would lose forward momentum..
Let me take it forward on broader basis..Based on 55% IV during last expiry,one could get broad range of 240-360-480..this series,where the stock is not expected to cross the extreme points.Stock would tend to be above 360 as long as MACD divergence cross(MACD line crossing signal line) is positive.If MACD divergence cross is negative or about to become negative,the stock would move below 360..
Pls visit my thread where nifty is analysed as indicated above..
http://www.traderji.com/options/92627-gamma-based-range-trade.html
Let me take it forward on broader basis..Based on 55% IV during last expiry,one could get broad range of 240-360-480..this series,where the stock is not expected to cross the extreme points.Stock would tend to be above 360 as long as MACD divergence cross(MACD line crossing signal line) is positive.If MACD divergence cross is negative or about to become negative,the stock would move below 360..
Pls visit my thread where nifty is analysed as indicated above..
http://www.traderji.com/options/92627-gamma-based-range-trade.html
No, not necessary. It also has nothing to do with any technical indicators or what so ever. Implied Option Volatility can destroy any of your plans, even you are on the right side of the move. Not even delta or gamma have any influence on this under certain circumstances. Most never experienced this under extremer situations, so do not know about this in details.
Still, it is just one stone in the whole puzzle of your price you showed with your filled. As told: It seems to be an accumulation of either of the four mentioned facts and just to say: Her by volume is meant as OI on the strike level. Enjoy your Sunday evening
Still, it is just one stone in the whole puzzle of your price you showed with your filled. As told: It seems to be an accumulation of either of the four mentioned facts and just to say: Her by volume is meant as OI on the strike level. Enjoy your Sunday evening
bought ADANIENT 380 Call at 15.15. ADANIENT itself was at 373 (Out of the money call, means "Time value is 15.15" )
sold ADANIENT on thursday when it touched 450 ( 380 call was now Deep in the money option)
Break even point = 380 + 15.15 = 395.15
you exit at 51 when the underlying is trade at 450.
X = underlying cmp - breakeven point = 450 -395.15 = 54.85.
May be that time ask rate will be around 55.00,Bid rate will be differ depends on underlying volatility at that time.
sold ADANIENT on thursday when it touched 450 ( 380 call was now Deep in the money option)
Break even point = 380 + 15.15 = 395.15
you exit at 51 when the underlying is trade at 450.
X = underlying cmp - breakeven point = 450 -395.15 = 54.85.
May be that time ask rate will be around 55.00,Bid rate will be differ depends on underlying volatility at that time.
markidharhai,
hope you understood the reason why your call value is below the intrinsic value.
One possbile reason as some one here already mentioned , is the liquidity issue in that deep itm option when you sold. My be there is huge bid-ask spread which you didn't notice and happened to sell at market price.
Or may be the Future is trading at deep discount. when calculating intrinsic value you have to see the difference between strike and future price not strike and spot price.
thanks.
hope you understood the reason why your call value is below the intrinsic value.
One possbile reason as some one here already mentioned , is the liquidity issue in that deep itm option when you sold. My be there is huge bid-ask spread which you didn't notice and happened to sell at market price.
Or may be the Future is trading at deep discount. when calculating intrinsic value you have to see the difference between strike and future price not strike and spot price.
thanks.
It has two root cause
1. Deep ITM doesn't have much buyer/seller i.e. less liquidity (even same happens for nifty deep ITM options, rs.15/20/25 spread).
2. Bought options if remained un-exercised (i.e. not sold) attracts the STT of 0.125% of entire contract value, in your case 380+15.15*1000*.125% = Rs. 494 additional STT if settled by exchange.
Solution:
1. If you think you are satisfied with the profit of Rs. 70 (i.e. you dont exepct it to rise further), then instead of covering/selling it at Rs. 51, you just sell 1 lot future of same expiry @ 450 (current market price), and your profit of Rs. 70 (please deduct your buying price premium and brok and tax) will be locked, all you got to do is just wait till expiry.
2. If scrip goes to 600 (taking such high price just for the sake of clear example), then you will lose Rs. 150 per lot in future, but at same time this loss shall be covered in your Call and its value would be Rs. 220, because (i hope you already know) at the date of expiry future and spot price is converged, and un-excercised optiions are settled at closing price of spot on the expiry.
3. Or if stock Fall to Rs. 300, in that case you are totally protected as your premium will become zero, but your shorting will give you profit even more than option profit (in case stock fall from there to below strike price, otherwise your rs. 70 is locked, no matter what happens in the market).
I hope it should be clear, if any confusion raise the query.
1. Deep ITM doesn't have much buyer/seller i.e. less liquidity (even same happens for nifty deep ITM options, rs.15/20/25 spread).
2. Bought options if remained un-exercised (i.e. not sold) attracts the STT of 0.125% of entire contract value, in your case 380+15.15*1000*.125% = Rs. 494 additional STT if settled by exchange.
Solution:
1. If you think you are satisfied with the profit of Rs. 70 (i.e. you dont exepct it to rise further), then instead of covering/selling it at Rs. 51, you just sell 1 lot future of same expiry @ 450 (current market price), and your profit of Rs. 70 (please deduct your buying price premium and brok and tax) will be locked, all you got to do is just wait till expiry.
2. If scrip goes to 600 (taking such high price just for the sake of clear example), then you will lose Rs. 150 per lot in future, but at same time this loss shall be covered in your Call and its value would be Rs. 220, because (i hope you already know) at the date of expiry future and spot price is converged, and un-excercised optiions are settled at closing price of spot on the expiry.
3. Or if stock Fall to Rs. 300, in that case you are totally protected as your premium will become zero, but your shorting will give you profit even more than option profit (in case stock fall from there to below strike price, otherwise your rs. 70 is locked, no matter what happens in the market).
I hope it should be clear, if any confusion raise the query.
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