Picking up nickels in front of steamroller!!

[jvblogger]

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

You can use your equity portfolio as collateral with your broker. You will be able to use 70-80% of the market value of these shares.

I use profit of generated from option selling to buy A group shares which again can be used for collateral and also appreciate gradually.

 

[cool_kk]

You can use your equity portfolio as collateral with your broker. You will be able to use 70-80% of the market value of these shares.

I use profit of generated from option selling to buy A group shares which again can be used for collateral and also appreciate gradually.

Thanks
I am not in India and trade only with icici so wondering if icicidirect allow that ?
I will check.. with them But I doubt.

 

[cool_kk]

You can use your equity portfolio as collateral with your broker. You will be able to use 70-80% of the market value of these shares.

I use profit of generated from option selling to buy A group shares which again can be used for collateral and also appreciate gradually.

Thanks, It worked for some shares as minimun requirement for share doesn't met in most cases But still I am able to get 35000 out of it so currently I have 72K to margin.

Hey.. do there brokers(icici) charge anything for keeping equity as margins.
I think I will not able to sold these equities kept as margin.

please comment
Thanks

 

[cool_kk]

Thanks, It worked for some shares as minimun requirement for share doesn't met in most cases But still I am able to get 35000 out of it so currently I have 72K to margin.

Hey.. do there brokers(icici) charge anything for keeping equity as margins.
I think I will not able to sold these equities kept as margin.

please comment
Thanks

Any suggestions... I am looking for August trade with your strategy.
I expect market to be 5000-5100 levels in August

Hypo example
So If I sell 5500 ce @ 30 rs premium
sell 4800 pe @ 17 rs premium

Set stop loss 46 on both sides.

I have a concern here, I expect market to go down and 4800 stop loss will definately reach at that time.
Market may not reach to 4800 levels But stoploss will trigger.
In this case Is there way to make profit by increasing stop loss limit for 4800 and take some risk if you don't expect market to reach 4800 level.

Also is there any loss in sell on intrinsic value of option.. means If I increase the stop loss to 60rs as I am ready to take risk (60-47=13) 13*50=650 rs+brokerage

So if market close at 4900 rs and if it doesn't hit stop loss of 60.
What is the loss/profit ?

Thanks

 

[jvblogger]

Thanks, It worked for some shares as minimun requirement for share doesn't met in most cases But still I am able to get 35000 out of it so currently I have 72K to margin.

Hey.. do there brokers(icici) charge anything for keeping equity as margins.
I think I will not able to sold these equities kept as margin.

please comment
Thanks

Not all shares can be kept as collateral. NSE has list of approved scripts. Further, in India broker dont charge anything for keeping shares as collateral.

 

[rrmhatre72]

Thanks, It worked for some shares as minimun requirement for share doesn't met in most cases But still I am able to get 35000 out of it so currently I have 72K to margin.

Hey.. do there brokers(icici) charge anything for keeping equity as margins.
I think I will not able to sold these equities kept as margin.

please comment
Thanks

ICICI gives that facility & I trade by creating margin from portfolio.
There are some charges. I do not remember it now. But those were negligible hence went ahead with plan.

 

[jvblogger]

Any suggestions... I am looking for August trade with your strategy.
I expect market to be 5000-5100 levels in August

Hypo example
So If I sell 5500 ce @ 30 rs premium
sell 4800 pe @ 17 rs premium

Set stop loss 46 on both sides.

I have a concern here, I expect market to go down and 4800 stop loss will definately reach at that time.
Market may not reach to 4800 levels But stoploss will trigger.
In this case Is there way to make profit by increasing stop loss limit for 4800 and take some risk if you don't expect market to reach 4800 level.

Also is there any loss in sell on intrinsic value of option.. means If I increase the stop loss to 60rs as I am ready to take risk (60-47=13) 13*50=650 rs+brokerage

So if market close at 4900 rs and if it doesn't hit stop loss of 60.
What is the loss/profit ?

Thanks

If you are planing to trade August option, then why are you sticking to 5500/4800 (premium seems incorrect). (http://www.nseindia.com/marketinfo/fo/optionKeys.jsp?symbol=NIFTY&instrument=OPTIDX&date=26AUG2010)

August series 4400 PE with Rs. 17-00 premium, but if you are selling August series then you want to sell option with premium around Rs.30-32, as you need to calculate return for two months not one months.

You can 4600 PE for Rs.32 and 5700 CE for Rs.17. If you are of view that market will not go above 5000-5100 then you can sell 5600 CE instead which will fetch Rs.34 for you.

I have a concern here, I expect market to go down and 4800 stop loss will definately reach at that time.
Market may not reach to 4800 levels But stoploss will trigger.
In this case Is there way to make profit by increasing stop loss limit for 4800 and take some risk if you don't expect market to reach 4800 level.

It is sometime possible that when we have sold an option for small premium and the option moves towards ITM quickly with having time value, then in such case our stop-loss premium triggers. Infact this is the situation one has to handle delicately, by making decision whether to hold the position or square off. Because there cannot be ready made rule for every situation.

I had to face this things twice during last two months. When in May the market slided down hitting my stop loss triggge of 4900 CE with premium of around Rs. 60-00 (double then my stop loss trigger) however I waited as I expected the market to have technical renounce, and couple of days after I was able to square off the option at my stop loss limit. Same thing happened in June with 5300 CE, which at one stage heighted to Rs. 89, thrice to my stop loss premium, but again I waited and the premium returned to Rs. 30-00 where I squared it off at my stop loss price.

However, I strongly advise you to do such thing at the beginning as it will panic you. So initially I suggest you to square off your position as soon as your stop loss triggers, without waiting for premium to go above your stop loss trigger and then waiting for correction. Soon you will realize that such high premium is not feasble for most of time. Suppose when my 5300 CE hit Rs. 90 premium, that meant that anyone who is buying 5300 CE with Rs.90 premium must have conviction that the NIFTY will go above 5390 and further to make some profit for him, within few days left to expiry. But market has common sense to sense such hyped price so normally premium returns to sensible level.

Also is there any loss in sell on intrinsic value of option

I dont get you. Do you mean you want to sell ITM option ?(which is also one kind of strategy). However loss is integral and inherent part of anything where profit is object.

So if market close at 4900 rs and if it doesn't hit stop loss of 60.
What is the loss/profit ?

If you have sold 4800 PE then you are not worried till the market closes at 4801, just above your contract price and in such case your profit will be the premium you pocked while selling the option.

 

[cool_kk]

If you are planing to trade August option, then why are you sticking to 5500/4800 (premium seems incorrect). (http://www.nseindia.com/marketinfo/fo/optionKeys.jsp?symbol=NIFTY&instrument=OPTIDX&date=26AUG2010)

August series 4400 PE with Rs. 17-00 premium, but if you are selling August series then you want to sell option with premium around Rs.30-32, as you need to calculate return for two months not one months.

You can 4600 PE for Rs.32 and 5700 CE for Rs.17. If you are of view that market will not go above 5000-5100 then you can sell 5600 CE instead which will fetch Rs.34 for you.



It is sometime possible that when we have sold an option for small premium and the option moves towards ITM quickly with having time value, then in such case our stop-loss premium triggers. Infact this is the situation one has to handle delicately, by making decision whether to hold the position or square off. Because there cannot be ready made rule for every situation.

I had to face this things twice during last two months. When in May the market slided down hitting my stop loss triggge of 4900 CE with premium of around Rs. 60-00 (double then my stop loss trigger) however I waited as I expected the market to have technical renounce, and couple of days after I was able to square off the option at my stop loss limit. Same thing happened in June with 5300 CE, which at one stage heighted to Rs. 89, thrice to my stop loss premium, but again I waited and the premium returned to Rs. 30-00 where I squared it off at my stop loss price.

However, I strongly advise you to do such thing at the beginning as it will panic you. So initially I suggest you to square off your position as soon as your stop loss triggers, without waiting for premium to go above your stop loss trigger and then waiting for correction. Soon you will realize that such high premium is not feasble for most of time. Suppose when my 5300 CE hit Rs. 90 premium, that meant that anyone who is buying 5300 CE with Rs.90 premium must have conviction that the NIFTY will go above 5390 and further to make some profit for him, within few days left to expiry. But market has common sense to sense such hyped price so normally premium returns to sensible level.



I dont get you. Do you mean you want to sell ITM option ?(which is also one kind of strategy). However loss is integral and inherent part of anything where profit is object.



If you have sold 4800 PE then you are not worried till the market closes at 4801, just above your contract price and in such case your profit will be the premium you pocked while selling the option.

Excellent Answer:

The more you read , more question come in mind.
I may be right or wrong as I don't know much about selling.

1) Option has time value as well as intrinsic value, time value becomes low and zero with time But intrinsic value is not lost with time
Intrinsic=Strike price-spot price

I guess intrinsic value also effect the seller.
Suppose market reaches 4701 at close (We bet on 4800)
But premium of 4800 with time become zero if all become zero near the time of expiry.
We are in loss for sure, how much is the loss here. (No stoploss here).


2) I was reading an example which says we need to take delivery if we sell put and the spot price reaches below strike price.
In case I sold 4200 Nift put
Nifty reaches at 4100

4100*50=205000 rs I end up as settlement and buying Nifty stock.
Is this the case, if no stop loss.

I am pasting example below:

You can see with IBM currently at $88.22 per share, the April 2009 $80 put option can be sold for $7.50 (splitting the bid/ask prices). So for every option you sell, you will instantly collect $750. If you sold 5 put options, you would receive $3750.

Put Option Selling & Option Expiration Day 2009

Here’s what goes down at option expiration day in April 2009:

1.If IBM is trading above $80 at expiration, then the options will expire worthless and you get to keep the full $750, no questions asked. You can then move on and do another put-sell trade for a future expiration period. Unfortunately, you will not be asked to buy any shares at $80. But at least you were compensated $750 per option for your time.
2.If IBM is trading below $80 at expiration, then congratulations, you will be called upon to buy the shares at $80 a piece. This is good news because $80 was the price you wanted to acquire them. Plus, you still get to keep the $750 paid to you on Day 1. The shares will show up in your account and you’ll be required to pay for the shares in full at that time. If you sold five option contracts, which is the same as 500 shares of stock, you will be required to pay out $40,000 at that time.

 

[jvblogger]

Excellent Answer:

The more you read , more question come in mind.
I may be right or wrong as I don't know much about selling.

1) Option has time value as well as intrinsic value, time value becomes low and zero with time But intrinsic value is not lost with time
Intrinsic=Strike price-spot price

I guess intrinsic value also effect the seller.
Suppose market reaches 4701 at close (We bet on 4800)
But premium of 4800 with time become zero if all become zero near the time of expiry.
We are in loss for sure, how much is the loss here. (No stoploss here).


2) I was reading an example which says we need to take delivery if we sell put and the spot price reaches below strike price.
In case I sold 4200 Nift put
Nifty reaches at 4100

4100*50=205000 rs I end up as settlement and buying Nifty stock.
Is this the case, if no stop loss.

I am pasting example below:

You can see with IBM currently at $88.22 per share, the April 2009 $80 put option can be sold for $7.50 (splitting the bid/ask prices). So for every option you sell, you will instantly collect $750. If you sold 5 put options, you would receive $3750.

Put Option Selling & Option Expiration Day 2009

Here’s what goes down at option expiration day in April 2009:

1.If IBM is trading above $80 at expiration, then the options will expire worthless and you get to keep the full $750, no questions asked. You can then move on and do another put-sell trade for a future expiration period. Unfortunately, you will not be asked to buy any shares at $80. But at least you were compensated $750 per option for your time.
2.If IBM is trading below $80 at expiration, then congratulations, you will be called upon to buy the shares at $80 a piece. This is good news because $80 was the price you wanted to acquire them. Plus, you still get to keep the $750 paid to you on Day 1. The shares will show up in your account and you’ll be required to pay for the shares in full at that time. If you sold five option contracts, which is the same as 500 shares of stock, you will be required to pay out $40,000 at that time.

Few things need clarification.
1) We are selling NIFTY option, which is index option.
2) In index option you dont have to take/give delivery , settlement is in cash.
3) Option premium consist two components. TIME VALUE + INTRINSIC VALUE
i) Time value depends upon the days/months left to the settlement/expiry
such option is Out The Money (OTM)
ii) When option strike price exceeds the spot price, then it also carry
intrinsic value , such option is called In The Money (ITM)

I sell OTM options so I play with time value and eat time decay in the option. I do not my option let go into ITM.

Ofcoures, selling ITM option is also one of the strategy when you are quite sure about the market direction.

In India till now all option including stock option were settled in cash so you did not have worry about giving delivery. However, recently SEBI has allowed to settle stock option in delivery if buyer so wishes. But hardly any one is interested in taking delivery.

So with NIFTY option you dont have to worry about delivery.

If you sell 4800 PE markets close at 4701 , then 4800-4701=99 Rs. would be your loss. In ITM NIFTY option each tick of NIFTY equal to Re.1 (in addition to time value , if any)

 

[cool_kk]

Few things need clarification.
1) We are selling NIFTY option, which is index option.
2) In index option you dont have to take/give delivery , settlement is in cash.
3) Option premium consist two components. TIME VALUE + INTRINSIC VALUE
i) Time value depends upon the days/months left to the settlement/expiry
such option is Out The Money (OTM)
ii) When option strike price exceeds the spot price, then it also carry
intrinsic value , such option is called In The Money (ITM)

I sell OTM options so I play with time value and eat time decay in the option. I do not my option let go into ITM.

Ofcoures, selling ITM option is also one of the strategy when you are quite sure about the market direction.

In India till now all option including stock option were settled in cash so you did not have worry about giving delivery. However, recently SEBI has allowed to settle stock option in delivery if buyer so wishes. But hardly any one is interested in taking delivery.

So with NIFTY option you dont have to worry about delivery.

If you sell 4800 PE markets close at 4701 , then 4800-4701=99 Rs. would be your loss. In ITM NIFTY option each tick of NIFTY equal to Re.1 (in addition to time value , if any)

Thanks, Now all the doubts so far are very much clear.
I will try to execute one trade in coming days.
Any suggestions for July. I think Market in July will be 5000-5250, range is big But that what I think.

Thanks Again JV,really appreciate your time.