Picking up nickels in front of steamroller!!

[cool_kk]

I use premium collected from both side as the stop loss meter. As in your case, you have collected total Rs.31 from both side. Therefore, I would square of the loosing option in case if premium of 5500 CE or 4800 CE reaches the level of Rs.30-00. So I have zero-tolerance to loss.

You are quite correct that if I square off one leg then I will have another leg naked. However, in my little experience if one side premium has increased then the premium of the other side would be negligible.

However, considering recent volatility and long period of Jule series, it might be possible that the market may bounce back within few days leaving too many days to expiry, in that case you should considering squaring off both the legs to avoid downside risk.

However, there are other strategy like squaring off the losing position and at same time selling higher OTM option, but I would not suggest to do such thing, right now as you are just beginning with option selling.

Regards,
JV

Hi JV

I am learning from your advise.
Will execute my first trade after understanding some nitty-gritties.

If we take the above the example.
1) As soon as we collect the premium.
We put the square off order with limit of 30 rs, Since market is very volatile, day high premium 5500 CE for previous close was 28.50.
day high premium 4800 PE is 16.50

if we put the 30 rs as limit what will happen if any of the square off order got triggered. How much loss we are talking here.


2) How icicidirect will change the margins if one leg is triggered and one remained opened. What is the suggestion here, We should close the other leg
in some loss as soon as other leg is triggered.
It means one has to sit and obeserve market all the time otherwise if market bounced back other leg might be in more negative, Is it correct. ?

I am a rookie so absolve if I had some silly questions.

Thanks

 

[jvblogger]

Hi JV

I am learning from your advise.
Will execute my first trade after understanding some nitty-gritties.

If we take the above the example.
1) As soon as we collect the premium.
We put the square off order with limit of 30 rs, Since market is very volatile, day high premium 5500 CE for previous close was 28.50.
day high premium 4800 PE is 16.50

if we put the 30 rs as limit what will happen if any of the square off order got triggered. How much loss we are talking here.

2) How icicidirect will change the margins if one leg is triggered and one remained opened. What is the suggestion here, We should close the other leg
in some loss as soon as other leg is triggered.
It means one has to sit and obeserve market all the time otherwise if market bounced back other leg might be in more negative, Is it correct. ?

I am a rookie so absolve if I had some silly questions.

Thanks

Wise asks questions!!

And I am still learning!! Option trading has endless possibilities!!

1) Suppose we have collected Rs. 17+17 (Rs.34) premium from both side and your stop-loss triggered of one side then there are two possibilities.

• (i) You can hold the other side option which might have left with insignificant premium (which depends upon how time left to expiry). In this case your loss would be 0 , assuming the option you are holding expire in OTM. In my experience when one side has move significantly chances of other side moving in that direction is fairly limited. However, you need to keep check on such open position.
  
  
• (ii) Second option , when market seems volatile and/or too many days are left in expiry one might consider square off the open position. In that case your loss would be the premium you paid for closing other side option.

2) When you sell option on both side, margin is calculated separately for both options as selling option on both side does not hedge any of the position. So if you would square off one side option, you have got your margin freed , and margin on other side would not changed.

I have explained both situations in above point 1.

Well, one doesn't have to sit before the screen whole day to observe , otherwise it would be difficult for me to follow this strategy.

As you will watch your experimental trade you will understand that in OTM options premium does not increase by every tick of NIFTY.

Today (9:30 am) NIFTY has moved up 24 point, which has increased premium of 5500 ce by Re.1 and decreased the premium of 4800 PE by Rs.3 as 4800 PE has moved farther from the spot price.

Therefore, no thumb rule can be laid down, but experience and spontaneous decisions (based on the experience earned) would help you

The MARKET is very lively ,like LIFE , and doesn't follow rules, we have to respect it and follow it.

Thanks for your interest!

Regards,
JV

 

[cool_kk]

Wise asks questions!!

And I am still learning!! Option trading has endless possibilities!!

1) Suppose we have collected Rs. 17+17 (Rs.34) premium from both side and your stop-loss triggered of one side then there are two possibilities.

• (i) You can hold the other side option which might have left with insignificant premium (which depends upon how time left to expiry). In this case your loss would be 0 , assuming the option you are holding expire in OTM. In my experience when one side has move significantly chances of other side moving in that direction is fairly limited. However, you need to keep check on such open position.
  
  
• (ii) Second option , when market seems volatile and/or too many days are left in expiry one might consider square off the open position. In that case your loss would be the premium you paid for closing other side option.

2) When you sell option on both side, margin is calculated separately for both options as selling option on both side does not hedge any of the position. So if you would square off one side option, you have got your margin freed , and margin on other side would not changed.

I have explained both situations in above point 1.

Well, one doesn't have to sit before the screen whole day to observe , otherwise it would be difficult for me to follow this strategy.

As you will watch your experimental trade you will understand that in OTM options premium does not increase by every tick of NIFTY.

Today (9:30 am) NIFTY has moved up 24 point, which has increased premium of 5500 ce by Re.1 and decreased the premium of 4800 PE by Rs.3 as 4800 PE has moved farther from the spot price.

Therefore, no thumb rule can be laid down, but experience and spontaneous decisions (based on the experience earned) would help you

The MARKET is very lively ,like LIFE , and doesn't follow rules, we have to respect it and follow it.

Thanks for your interest!

Regards,
JV

great
will write more in morning
thanks

 

[cool_kk]

I wake up so can write..

Assumption is market direction is against me.. big time...

What is the loss we are talking here if I don't put stop loss as you said ?

OR

If I put stop loss of 50 (total premium collected from both is 34)

I have never traded selling so want to calculate loss also max.. what it could be.. on one lot of Nifty

 

[rrmhatre72]

I wake up so can write..

Assumption is market direction is against me.. big time...

What is the loss we are talking here if I don't put stop loss as you said ?

OR

If I put stop loss of 50 (total premium collected from both is 34)

I have never traded selling so want to calculate loss also max.. what it could be.. on one lot of Nifty

Hi Cool KK,

I agree loss will not be much with one lot.
But here JVB is trying to create trader's mentality....
We should try to learn system as is... Once we are trained then one can always take his own decision based on his risk taking profile...

With one lot loss may be low but tomorrow if you start playing with 100lots then it will be big....

 

[cool_kk]

Hi Cool KK,

I agree loss will not be much with one lot.
But here JVB is trying to create trader's mentality....
We should try to learn system as is... Once we are trained then one can always take his own decision based on his risk taking profile...

With one lot loss may be low but tomorrow if you start playing with 100lots then it will be big....

Thanks
Sorry for posting here But I am newbie in selling.

I never sold nifty so thought of knowing how loss is calculated.
If I put stop loss 50 then 16*50 is my loss ? )premimu total 34)
and
if there are no buyer then at settlement my loss is MAX if market is against me because of intrinsic value of option.

 

[rrmhatre72]

Thanks
Sorry for posting here But I am newbie in selling.

I never sold nifty so thought of knowing how loss is calculated.
If I put stop loss 50 then 16*50 is my loss ? )premimu total 34)
and
if there are no buyer then at settlement my loss is MAX if market is against me because of intrinsic value of option.

Yes you are right 16*50+ brokrage is your loss.
Nifty options are very liquid hence safe to trade in Nifty option.
This is what I have observed.

if at expiry one of the leg is 50 then other leg is at zero.
that means leg with value of 50 is ITM option & it will be liquid for sure.
On another leg will be OTM & you really do not care about its liquidity as you are not going to square it off.

 

[rrmhatre72]

Hello

This thread looks awsome so far,I am novice to selling But liking the idea of it.

I have buy put @ 5600 for july @ 270 and yesterday sold it for 340 so profit of 3k But this trade done was too risky without any coverage so might not be that good. I don't want to wait for more profit so squared off.


Can you explain the trade you mentioned, you need to block 56K/2lot as margin.
I guess margin changes with time, I was checking on icici margin calculator.
total margin for your trade(2lots) coming to be 36k, I may be wrong as I put the rate against quantity
please correct me if I am wrong.

Also, if market is volatile, icici will require you to increase the margin otherwise it will auto square off closing one leg ?

Also if market is range bound you will get--> 31.5 *50=1575 rs profit.

Few questions if any one can explain

1) If premium of one leg goes low in one leg i.e In our favor can we sell off that leg and make more profit keeping other leg open.

2) how does it work at expiry, it means keep your premium and trade will auto close.

3) Suppose if it breaks one leg at stop loss price and bounce back ? what is the max loss we are seeing here.
If we have to look in markert all the time as I am in different time zone can't look all the time.

Thanks
cool kk

Hi Cool KK,

You are right on margin for 4800PE lot.
Margin required will be 16.8k But for 5500CE it is 19.5k.
I think I had checked ATM previously where it was coming to ~28k.
So this is good for me. My ROI will increase.

 

[jvblogger]

I wake up so can write..

Assumption is market direction is against me.. big time...

What is the loss we are talking here if I don't put stop loss as you said ?

OR

If I put stop loss of 50 (total premium collected from both is 34)

I have never traded selling so want to calculate loss also max.. what it could be.. on one lot of Nifty

Mahtre has suitably replied your query.

If the market is against you, and you dont put stop loss then theoretically the loss could be unlimited. Understand the importance of stop loss in all kind of trading methods and more particularly in option selling. Stop loss is one of the method of risk management.

A prudent trader would decide his risk management method before he execute the trade , and more importantly stick to the risk-management plan.

If you put stop loss of Rs. 50, against the premium of 34 , then roughly your loss would be Rs. 16 (assuming the other side option expire OTM)

If you want to know maximum loss , theoretically maximum loss is unlimited as I stated above. You should decided a limit of loss you are ready to bear per trade, you cannot keep the loss unlimited, that would be horrible idea.

Further I personally prefer not to take any loss, not a loss of single rupee. But still you can decide your loss bearing limit.

 

[cool_kk]

Mahtre has suitably replied your query.

If the market is against you, and you dont put stop loss then theoretically the loss could be unlimited. Understand the importance of stop loss in all kind of trading methods and more particularly in option selling. Stop loss is one of the method of risk management.

A prudent trader would decide his risk management method before he execute the trade , and more importantly stick to the risk-management plan.

If you put stop loss of Rs. 50, against the premium of 34 , then roughly your loss would be Rs. 16 (assuming the other side option expire OTM)

If you want to know maximum loss , theoretically maximum loss is unlimited as I stated above. You should decided a limit of loss you are ready to bear per trade, you cannot keep the loss unlimited, that would be horrible idea.

Further I personally prefer not to take any loss, not a loss of single rupee. But still you can decide your loss bearing limit.

Thanks JV
I really like what you and mahtre replied.
I will do paper trade selling for July and if feel comfortable will trade August.
At that time I will have additional 1Lakh to cover margins.
At this time, I have only 45K and if anyone suggest I am ready to take out money from equity portfolio which scuks big time.
I am not sure what to do with equity portfolio so holding it ON.

You are right, one should put stop loss. I was amateur at that time and still I am But more wary now:

I haven't put for stop loss of my equity trading in 2002, I am still holding those stocks and my equity portfolio is in red from 2002.
I am not sure what to do with that..I can hold it for another 5 years. If its woth to hold.

Any Suggestions: I made some profit way back But now in losses so if I book now I will be in 10% loss. of prfit/loss ratio.

Last traded these stocks in 2004-05(Atal Bihari baj)
Equity Portfolio:

Stock-- Purchase Price Current Price Investment Loss
BHEL 2545 2440 49000 1800
RELMED 144 80 34000 14000
(World)

HINDALCO 185 144 5200 2000
RELPOW 200 170 4200 900
(IPO)

Mutual Funds:

Franklin High Growth Dividend" NAV is 11.70 purchased @ launched last year
Investment profit
25000 4100

Options:

1 trade July

5600 PE @ 270
Sold @ 341

Profit 3200