Option trading with DanPickUp

[DanPickUp]

Hi Dan,

I had a very specific question.

I am usually holding lots of Futures Nf in the direction of the trend. After NF going 150 points in favour I like to start taking profits. To do that I would like to sell ATM Options against NFs instead of selling NFs for booking profit.

I would like to know/learn any option dynamics to best do the job.

Please advice.

Hi Jamit

Sorry, did not see your post as it came in the time I was typing the last one.

Well, selling options to take profit made with the future. Already a more advanced idea.

Any answers to the following questions:

Market moves up: Profit on futures / sell atm what kind of option and how many?

After sold that option: Market moves down / what will you do now according to the options you sold?

After sold that option: Market moves up and runs away / what would you do now according to the sold options?

Look at your chart when you answer those questions and what would be the follow up action, if even possible, you could imagine you would do?

Finally: What talks against to take just some profit by reducing your future lots? What advantage you see to sell options instead to sell some futures?

DanPickUp

 

[jamit_05]

Hi Jamit

Any answers to the following questions:

Market moves up: Profit on futures / sell atm what kind of option and how many?

After sold that option: Market moves down / what will you do now according to the options you sold?

After sold that option: Market moves up and runs away / what would you do now according to the sold options?

Look at your chart when you answer those questions and what would be the follow up action, if even possible, you could imagine you would do?

Finally: What talks against to take just some profit by reducing your future lots? What advantage you see to sell options instead to sell some futures?

DanPickUp

The advantage I see is this:

By selling NF alone, I get what I get. Nothing more nothing less. But, I stand to lose out on the upside potential.

On the other hand, in an uptrend, selling CEs against NFs, I get the premium (which is more than 100 points). This largely covers the upside potential.

If price continue upward journey I am not worried since CEs are covered.
If price reverse and then still I am in a good spot since I have collected around 100 points of premium per lot.
If price goes sideways, still I am in a good spot due to Theta.

Only if I knew how to best sell options. Do options indicate price momentum?

 

[DanPickUp]

The advantage I see is this:

By selling NF alone, I get what I get. Nothing more nothing less. But, I stand to lose out on the upside potential.

On the other hand, in an uptrend, selling CEs against NFs, I get the premium (which is more than 100 points). This largely covers the upside potential.

If price continue upward journey I am not worried since CEs are covered.
If price reverse and then still I am in a good spot since I have collected around 100 points of premium per lot.
If price goes sideways, still I am in a good spot due to Theta.

Only if I knew how to best sell options. Do options indicate price momentum?

Hi Jamit

Interesting answers, but not enough to give a green light from my side.

Did you ever test what you told with any option analyzing software? I highly recommend you to use such kind of software in case you want to trade high volume futures and mix the strategy up with options.

One future is delta 100 and one at the money option is delta 50. If you have f.e 3'000 delta and you sell 1'500 delta against it, how will your risk curve look?

If you sell 3'000 delta against it, how many options you have to sell to be delta neutral?

If you go only for the price, what impact could the vola have on your sold call options in case market moves up like heavy?

My clear advise to you: Sell partial amounts of your futures to have safe profits and keep a clear stop loss on your long other futures. Why?

1. Your market doe's not offer enough sufficient option strike levels to take advantage of what you think about.

2. If you really wanted to get out an advantage of your idea, you would need a much deeper knowledge about option strategy trading.

3. The next point is your Exchange. With out giving the possibility and the power to retail traders to trade on low margins, you are lost when it comes to any kind of hedge trading in your country.

Good trading / DanPickUp

 

[THETRADER]

The advantage I see is this:

By selling NF alone, I get what I get. Nothing more nothing less. But, I stand to lose out on the upside potential.

On the other hand, in an uptrend, selling CEs against NFs, I get the premium (which is more than 100 points). This largely covers the upside potential.

If price continue upward journey I am not worried since CEs are covered.
If price reverse and then still I am in a good spot since I have collected around 100 points of premium per lot.
If price goes sideways, still I am in a good spot due to Theta.

Only if I knew how to best sell options. Do options indicate price momentum?

If price continues upward - It is as if you have booked profits on your long NF, of course an additional 100 pts (Is it?)

If price reverses -
the current option premium that has been sold is higher than
(the option premium collected 100pts - decline in Futures) results in loss of profits!
assuming theta has not come to effect (immediate times).
If it keeps going down, your futures keeps losing whereas the premium collected is 100pts only!

If price goes sideways - Good - theta kills the premium.

I was doing this earlier. And have also covered the option at important supports with a clean exit plan for futures as a Stop. Sometimes sold puts at the supports too after covering the call. The problem is this makes one lethargic in terms of taking the next followup trades as it gives some comfort feeling!

 

[dineshN]

Nice to see this thread has come alive again! In the past, already went through this thread twice but very difficult this option trading is! Started reading Option handbook and already past 80 pages. Hope to get tradable ideas on this try!! Working on our own ideas and trading strategies is a wonderful experience.
Sincere thanks to DanPickUp!!!! :clapping:

 

[DanPickUp]

Hi DineshN

Not all the strategies shown in the book are very useful for your market. Many just expand your knowledge what could be done and that is fine. So you have to be very selective by what you will choose and go for. As you and others show interest in it, here some more help from my side: http://www.polaris.com.hk/UploadFile/ehkweb/FinancialProducts/3.Greeks based strategy-1.pdf Posted that one in the past, but the actuality has not gone, as this is PDF is strongly related to your market.

And here just some thing for fun, which was posted in the same thread. A variation on a classic illusion, this cat can be perceived as rotating in either direction. With practice, you can make it switch at will! :http://games.yahoo.com/photos/spinning-cat-1312497347-slideshow/ but do not cheat and read at the bottom. Try to find out by your self as I did. My solution was not posted at the bottom, because I did not read them.

DanPickUp

 

[jamit_05]

I get your points. Options are murky waters.

 

[DanPickUp]

I get your points. Options are murky waters.

Yep, and if you do not know that murky waters in any detail (new English word I learned know/ Thanks), you easily can sink in any / many hidden recesses.

See you around and good trading / DanPickUp

 

[DanPickUp]

Hi Tradertushar

I am a bit confused with your comment: This is just beginning.

Beginning of what?

DanPickUp

And by the way: Posting the same post in the same section in two threads at the same time is just crap.

Choose your definite thread you want to be in and if you choose to post all the times the same post in two threads, do not ever use again this thread for such kind of posts. Thank you.

 

[niftytaurus]

hi
have u got the solution of this prob.i m facing same problem
thanks