Option trading with DanPickUp

[MANISH_DAMANI]

Dear MD

Thanks for your compliments and if the thread helped you to improve your knowledge about options, it did his work and idea behind it.

As I got some knowledge from this forum about future trading, I decided to write a thread about option trading as a thank you to the people who did good to me.

Coming to some of your questions:

Option strategy trading can be done very well and successfully on TA knowledge in combination with other tools like OI, Put call ratio, low and high vola, just to mention a few.

The most important point is to understand your option strategy you trade in every little detail. That includes the risk you take with this option strategy, as different option strategies include different risk profiles. Here you not have a best or worst option strategy as there are so many possibilities to trade, at least at the CME.

I do not make decisions on what you ask like; If delta is there and there, should I write now options or what so ever.

So how do I think? Let me give you just once and only one simple example:

Let me take your question again: If delta is at 0.7 or 0.9, should I sell options here?

My view in such a case: How can I bring my self into a situation to sell a call or put over the zero line at that point in a hedged manner? As simple and as complicated as it sounds: That is the inner circle of all thoughts when implementing any option strategy. Any other idea or thoughts have no relevancy to my kind of trading, what ever strategy I finally trade.

Different traders, different thoughts and attitudes.

Good trading / DanPickUp

Dan this not a question -Let me take your question again: If delta is at 0.7 or 0.9, should I sell options here?
My motto to ask on this is how to use greeks to enter trade . lets take real example day before yesterday as per technicals I am expecting bank nifty to give some pull back upto 11500/11643/11719 in few days. already gone upto 11413 in cash. Broader range currently for me for few days is 10782.5- 11700 or above. Downside I am not expecting below 10700. I wanted to made a bull put spread for wider range of say 11700 put I short it opens 570 made a high of 583. say i have write it near 550 and buy a put of 10700 at the rate say near 70. MY total credit is 550-70=480.its made a low of 387.95-49.05=338.9. means profit of rs 141.10 in this spread. fall in OI of 11700 and 10700 put increased with it fall . Means as per O I also my judgement could be right. but how you deal with this option greeks if you where at my place- . ?

secondly if market comes upto 10700 or below then what will be my maximum risk, As my both puts in the money loss in put written is compensated by put bought which is in money. And get some time decay benefit on expiry. I am asking you this just for the reason what will happen if it expires near 10700/11000 in both case.

 

[DanPickUp]

Dan this not a question -Let me take your question again: If delta is at 0.7 or 0.9, should I sell options here?

My motto to ask on this is how to use greeks to enter trade . lets take real example day before yesterday as per technicals I am expecting bank nifty to give some pull back upto 11500/11643/11719 in few days. already gone upto 11413 in cash.

Broader range currently for me for few days is 10782.5- 11700 or above.

Downside I am not expecting below 10700.

I wanted to made a bull put spread for wider range of say 11700 put, I short it opens 570 made a high of 583. say i have write it near 550 and buy a put of 10700 at the rate say near 70.

MY total credit is 550-70=480.its made a low of 387.95-49.05=338.9. means profit of rs 141.10 in this spread. fall in OI of 11700 and 10700 put increased with it fall . Means as per O I also my judgement could be right. but how you deal with this option greeks if you where at my place- View attachment 18719 . ?

secondly if market comes upto 10700 or below then what will be my maximum risk, As my both puts in the money loss in put written is compensated by put bought which is in money. And get some time decay benefit on expiry. I am asking you this just for the reason what will happen if it expires near 10700/11000 in both case.

Dear MD

I HAVE NO QUESTION TO WHAT YOU POST.

If you did not understand what I posted, then you did not understand it.

Any way:

You can use the option greeks to enter a trade in a way you define how to use the option greeks.

If your first rule is theta, then you use option strategies which bring in account theta.

If you wan to trade option strategies which bring in account delta, then you use option strategies which bring in account delta and so on.

By the way: A bull put spread made of 11700 and 10700 puts are out of my way of trading. This may is a subject in your home market, but out of question where I trade. Absolute nonsense and not even thought about it.

But as I say: This may is a question in the market you trade but it is out of any question where I trade.

Good trading / DanPickUp

 

[shemz]

Now about the comment that puts in general have a higher IV: I know that this is the case in the S&P 500 in the States and also in wheat.

Just a point in reference, puts in the US are overpriced since '87. India is yet to experience something like that, and when that happens, the sell side will ask for a higher premium for betting against a black swan.

 

[MANISH_DAMANI]

Dear MD

I HAVE NO QUESTION TO WHAT YOU POST.

If you did not understand what I posted, then you did not understand it.

Any way:

You can use the option greeks to enter a trade in a way you define how to use the option greeks.

If your first rule is theta, then you use option strategies which bring in account theta.

If you wan to trade option strategies which bring in account delta, then you use option strategies which bring in account delta and so on.

By the way: A bull put spread made of 11700 and 10700 puts are out of my way of trading. This may is a subject in your home market, but out of question where I trade. Absolute nonsense and not even thought about it.

But as I say: This may is a question in the market you trade but it is out of any question where I trade.

Good trading / DanPickUp

Thanz Dan for your reply. I have understood now what you have written and got my answer too from your reply.:thumb:

 

[ananths]

Hi All,
I read through many posts in this traderji forum on spreads..and understand that its a low risk strategy..so i'm trying to implement and learn this kind of trading in NIFTY options. Now i'm planning to trade as below. Please let me know what you think about this strategy.
NIFtY spot : 5689, FUT :- 5724
Date: 1 Apr 2013
5700PE - 78
5600PE - 46
5700CE - 98
5800CE - 51
5800PE - 128
I assume market outlook is bearish (Should not matter if im wrong)
strategy 1 : Bearish Debit PUT spread
BUY 1 LOT 5700 PE and SELL 1 LOT 5600PE
Scenario 1:- If market goes down i will be in profit
Scenario 2:- If market is stagnant, I will get profit from SHORT side and will lose some points in LONG side. However market wont be stagnant for entire month
Scenario 3 :- If market turns bullish, I will be in loss in long side and will benefit from the short. However loss will be more than the gain. In this case i need to adjust my position.
I will wait till market goes above 5800..then i will sell one ATM 5800PE and cover my 5600PE. So this spread becomes a credit spread. Now say market goes back to 5700..i will gain from Long 5700PE and as time goes i will earn the time value from Short 5800 PE. If market goest further up towards 5900...i will get to keep entire premium sold is short 5800PE and lose all the premium paid for 5700PE.
i think there could be some issue if market stays in between 5700 & 5800...because i will lose entire money in long put. Need to take action based on market at that time.

Strategy 2:- Bearish Credit Call spread
SELL 1 LOT 5700CE AND BUY 1 LOT 5800CE
Scenario 1:- if market goes down, I dont need to do anything..I will get the entire premium from short
scenario 2: If market is stagnant...i will gain from the premium received
Scenario 3: if Market goes up..just wait and watch..i think in this case i will incur some loss..but it would be limited. I have not thought about any addition leg adding strategy here...if you guys know what we can do here..please let me know..

I need inputs from experts on these two strategies..i know these are not new strategies..I have read some posts from Dan and AW10 on spreads and i'm using that knowledge in these strategies. I have not applied this kind of strategy before..so need expert opinion on this. Paper trading and live trading is different...so if you think any flaws or where this strategy could go wrong..please let me know. Thanks in advance

 

[DanPickUp]

Dear Ananths

Compliment from my side to what you wrote down.

- Bearish Debit PUT spread: Not much to say about that, as what you wrote is fine, even the way you adjust it. It is a whole trading plan and that is the way how option strategy traders do work. Well done :clapping:

- Bearish Credit Call spread: So far also fine. If market now moves up, you have many choices. For example: You move up your call credit spread by first buying back the 5700 c, then selling the 5800 c. Now you are clean with your old spread and now you implement the new spread with first buying the 5900 c and then sell the 5800 c or you give a spread order to your broker.

Or you implement a butterfly when you think market will now start to swing in a range. As you have already a short 5700 c and a long 5800 c, you just sell one more 5700 c and buy the 5600 c. Now you have pure call butterfly.

There are more ways to trade that situation, but that will do.

All the best and good trading

DanPickUp

 

[ananths]

Thanks Dan for your quick reply and the advice if market goes against in this plan. I have not used butterfly strategy so far. So i'm analysing that now..I will use this technique if I land up in such situation
I read about butterfly strategy using below link.
http://www.optiontradingpedia.com/free_butterfly_spread.htm
it's a low risk strategy as per the article and it looks like so..currently i dont have a software to test it. I had options oracle which is not working now. My broker "Zerodha" is providing a software which i will subscribe to draw these charts.
It looks like a charting software is a must to trade in Options
if there is any free software like optionsoracle please let me know. Thanks.

 

[DanPickUp]

Dear Ananths

The following link is a free source: http://www.option-price.com/option-portfolio.php

As I use OpVue and some private software, the above link is the only free stuff I can think of. OpVue is highly sophisticated and very expensive and private software will stay as private.

Using an analyzing software helps to determine the break even points in a visual way. (Trading options visually: P. Forchone).

I hope you got the point about the above butterfly: You only implement the two new legs (Short an other 5700 c and long a new 5600 c) after market moved up and gives a signal to turn down again. Points to consider:

- Vola in the underlying
- Days to expiration
- S&R in the time frame you trade (Range)
- Adjustment rules at your break evens

Good trading / DanPickUp

 

[ananths]

Dear Dan,
I completely understand butterfly strategy you have mentioned. I won't jump into the trade without understanding it. I have read most of the options strategies in the net...few are bit difficult to implement in NSE. One such strategy is calendar spread. NSE doesn't provide that flexibility to the trader..you will see maximum 3 months options.However liquidity is very low for the next month options. One more drawback is strike price is 100 points for index options..and stock options are not liquid at all. So I used to prefer option writing in Nifty. It worked till certain point. To be frank i was successful to judge the market direction and made some money for the past one year. Now i have realized writing options is a high risk business and burnt my fingers last month!..however I still protected my capital and some profit I was lucky i should say...now i will shift to a better trading technique like the one I mentioned above. I should enjoy trading as well as make some profit out of it. My knowledge in TA is bit low...after reading few posts in this forum, i'm really interested to learn TA. I will put effort to find out technical and how it needs to be used to find market direction. I know there is no easy money in any business If you have any good links to learn TA let me know..Thanks once again. :thumb:
Regards,
Ananth

 

[DanPickUp]

Dear Ananths

I made a post in this thread with a link to a thread of a friend of mine: Swing King. Try to find this post with that link and in that thread you will really have good, useful and easy to understand comments on how to use TA on different time frames or even in combination.

You may also follow threads from dear Smart Trade or the new one from Vikas about trend trading, just to mention a few. There are endless threads here from great TA lovers like Trade with hunter or VJAS or Raghavee and so on.

You may search a bit for those threads or you get in touch with dear Timepass, as he has a collection of threads he openly recommends to the members here.

DanPickUp