Picking up nickels in front of steamroller!!
- Thread starter jvblogger
- Start date
- Tags naked option selling option selling option writing
Options in Currencies would be an extension to our trading and hedging 
Btw do u trade in Currency Futures yet ...??
The volatility in the market by the Jan end was too much to expect.. but situation like this tests the stregth of ur strategy....but still way to go
Btw do u trade in Currency Futures yet ...??
The volatility in the market by the Jan end was too much to expect.. but situation like this tests the stregth of ur strategy....but still way to go
In the January series I was able to keep 50% of total premium I had collected. I had to square off put options of DLF, TATAMOTORS and NIFTY. The buffer of the premium from side helped to save the situation.
Buddy..
How did u manage to save 50% of the premium... i understand, the higher side helped u save the 50% of the initially... collected amt.
But while Squaring off, the options of tata motos , DLF, NIFTY... you might had to buy them back at a higher premium than what you had baught.... as the trend was too bearish.. yes.. if u had squared them off on the last day... you might have got them at almost NIL time value.
I have a Question. My broker ( icici Direct ) squared my short position on nifty 4900 Put... when nifty was alomst 4870 type....was it only coz of lask of sufficient Margin....? ( the margin was well maintained.. till 26th... jan.)
If yes.. then what is the safe amt we must put to avoid all these borker automatic squre offs...?
How did u manage to save 50% of the premium... i understand, the higher side helped u save the 50% of the initially... collected amt.
But while Squaring off, the options of tata motos , DLF, NIFTY... you might had to buy them back at a higher premium than what you had baught.... as the trend was too bearish.. yes.. if u had squared them off on the last day... you might have got them at almost NIL time value.
I have a Question. My broker ( icici Direct ) squared my short position on nifty 4900 Put... when nifty was alomst 4870 type....was it only coz of lask of sufficient Margin....? ( the margin was well maintained.. till 26th... jan.)
If yes.. then what is the safe amt we must put to avoid all these borker automatic squre offs...?
I calculated again after you pointed out your doubt. What I meant to convey was that I was to able keep 50 % of profits of all 4 trades.
Following is the table of calculation of all trades for JAN'10 and the aftermath.
If you will note I had to square 3 put options but still in these three trades I was able to keep some money. I paid quite high premium for NIFTY PUT at Rs. 27 which I had sold for 18.50. For DLF PUT I paid slightly high premium of Rs.8.125 for the premium I had collceted was Rs.7.175. And for TATA MOTORS PUT I paid lower premium of Rs 4.2176 for the premium I had collected was Rs. 5.8.
of course, the spurt in volatility was at the end of the series so options did not contain much of time value, that was fortunate part for me.
Now I am trying an add-on approach ,at least, for NIFTY options.
While calculating for Implied volatility, I found that present Implied volatility for call and put options is in the ration of 2:3.
i.e. if IV of 5200 CALL was 19% then IV for 4500 PUT was around 28%. As the downside risk is more and it is very easy to slide down on any weak sentiment and perhaps presently the market sense weak sentiment also.
Therefore, I have decided to sell put:call option in the ratio of 2:3. Two put options and three call options to make a strangle.
For Feb'10 series I have sold 2 NIFTY 4500 PUT options for Rs.32-00 and 3 5200 CALL options , that also distribute the buffer as well.
I get higher buffer for lower side and lower buffer for higher side. i.e. I have total cushion of Rs. 89-00 for 2 PUT options as against Rs.70-00 , I would have in 1:1 ratio. At the same time cushion for CALL options decrease to Rs.59-00 which could be Rs. 70-00 if the ratio was 1:1.
I have also sold TATA MOTORS 500 PUT for 8.00 when the stock was hovering around the support level of Rs. 560-00, today the stock has bounced back to from the level to 579-00
Following is the table of calculation of all trades for JAN'10 and the aftermath.
If you will note I had to square 3 put options but still in these three trades I was able to keep some money. I paid quite high premium for NIFTY PUT at Rs. 27 which I had sold for 18.50. For DLF PUT I paid slightly high premium of Rs.8.125 for the premium I had collceted was Rs.7.175. And for TATA MOTORS PUT I paid lower premium of Rs 4.2176 for the premium I had collected was Rs. 5.8.
of course, the spurt in volatility was at the end of the series so options did not contain much of time value, that was fortunate part for me.
Now I am trying an add-on approach ,at least, for NIFTY options.
While calculating for Implied volatility, I found that present Implied volatility for call and put options is in the ration of 2:3.
i.e. if IV of 5200 CALL was 19% then IV for 4500 PUT was around 28%. As the downside risk is more and it is very easy to slide down on any weak sentiment and perhaps presently the market sense weak sentiment also.
Therefore, I have decided to sell put:call option in the ratio of 2:3. Two put options and three call options to make a strangle.
For Feb'10 series I have sold 2 NIFTY 4500 PUT options for Rs.32-00 and 3 5200 CALL options , that also distribute the buffer as well.
I get higher buffer for lower side and lower buffer for higher side. i.e. I have total cushion of Rs. 89-00 for 2 PUT options as against Rs.70-00 , I would have in 1:1 ratio. At the same time cushion for CALL options decrease to Rs.59-00 which could be Rs. 70-00 if the ratio was 1:1.
I have also sold TATA MOTORS 500 PUT for 8.00 when the stock was hovering around the support level of Rs. 560-00, today the stock has bounced back to from the level to 579-00
I calculated again after you pointed out your doubt. What I meant to convey was that I was to able keep 50 % of profits of all 4 trades.
Following is the table of calculation of all trades for JAN'10 and the aftermath.
If you will note I had to square 3 put options but still in these three trades I was able to keep some money. I paid quite high premium for NIFTY PUT at Rs. 27 which I had sold for 18.50. For DLF PUT I paid slightly high premium of Rs.8.125 for the premium I had collceted was Rs.7.175. And for TATA MOTORS PUT I paid lower premium of Rs 4.2176 for the premium I had collected was Rs. 5.8.
of course, the spurt in volatility was at the end of the series so options did not contain much of time value, that was fortunate part for me.
Now I am trying an add-on approach ,at least, for NIFTY options.
While calculating for Implied volatility, I found that present Implied volatility for call and put options is in the ration of 2:3.
i.e. if IV of 5200 CALL was 19% then IV for 4500 PUT was around 28%. As the downside risk is more and it is very easy to slide down on any weak sentiment and perhaps presently the market sense weak sentiment also.
Therefore, I have decided to sell put:call option in the ratio of 2:3. Two put options and three call options to make a strangle.
For Feb'10 series I have sold 2 NIFTY 4500 PUT options for Rs.32-00 and 3 5200 CALL options , that also distribute the buffer as well.
I get higher buffer for lower side and lower buffer for higher side. i.e. I have total cushion of Rs. 89-00 for 2 PUT options as against Rs.70-00 , I would have in 1:1 ratio. At the same time cushion for CALL options decrease to Rs.59-00 which could be Rs. 70-00 if the ratio was 1:1.
I have also sold TATA MOTORS 500 PUT for 8.00 when the stock was hovering around the support level of Rs. 560-00, today the stock has bounced back to from the level to 579-00
Following is the table of calculation of all trades for JAN'10 and the aftermath.
If you will note I had to square 3 put options but still in these three trades I was able to keep some money. I paid quite high premium for NIFTY PUT at Rs. 27 which I had sold for 18.50. For DLF PUT I paid slightly high premium of Rs.8.125 for the premium I had collceted was Rs.7.175. And for TATA MOTORS PUT I paid lower premium of Rs 4.2176 for the premium I had collected was Rs. 5.8.
of course, the spurt in volatility was at the end of the series so options did not contain much of time value, that was fortunate part for me.
Now I am trying an add-on approach ,at least, for NIFTY options.
While calculating for Implied volatility, I found that present Implied volatility for call and put options is in the ration of 2:3.
i.e. if IV of 5200 CALL was 19% then IV for 4500 PUT was around 28%. As the downside risk is more and it is very easy to slide down on any weak sentiment and perhaps presently the market sense weak sentiment also.
Therefore, I have decided to sell put:call option in the ratio of 2:3. Two put options and three call options to make a strangle.
For Feb'10 series I have sold 2 NIFTY 4500 PUT options for Rs.32-00 and 3 5200 CALL options , that also distribute the buffer as well.
I get higher buffer for lower side and lower buffer for higher side. i.e. I have total cushion of Rs. 89-00 for 2 PUT options as against Rs.70-00 , I would have in 1:1 ratio. At the same time cushion for CALL options decrease to Rs.59-00 which could be Rs. 70-00 if the ratio was 1:1.
I have also sold TATA MOTORS 500 PUT for 8.00 when the stock was hovering around the support level of Rs. 560-00, today the stock has bounced back to from the level to 579-00
This add-on approach seems more logical.. as this takes care of the current IV. Now, i was just wondering... for the Jan series... during dec end.. the market was a little on the run.... hence CALL/PUT > 1, if we would've sold the options, by that trend.. we would have incurred more more losses.. as by Jan end.. the trend was bearish...and IV was more for the PUT than CALLS.
So.. seeing at the Current IV... can give u a tread for the shortterm basis.. If we expect to let the Option expire and collect all the money... shdn't the earlier strategy was better.. ? Just a perspective.!
one more thing..
U collected... ard 14K against the premium expected of 27K... what was the approx. balance u needed to maintain as the margins... i want to include the risk of any MTM along with Initial Margin req. Tell me the approx. amt u maintained for the same.
in ur prev. post, how did you calculated the cusion figures for the PUT and CALL.. could you pls elaborate..?
thanks
SM.
Thanks for your continue interest and query, that helps me to re-look my strategy and trade.
I have little difficulty in understanding your question. Do you wish to say that had I chosen the 2:3 strategy during Jan' series, I would have suffered more loss?
I am selling 3 calls and not 3 puts, so it would help in bearish mood. Here is the calculation of cushion.
I will post the margin requirement next, as I am bit in hurry ...
I have little difficulty in understanding your question. Do you wish to say that had I chosen the 2:3 strategy during Jan' series, I would have suffered more loss?
I am selling 3 calls and not 3 puts, so it would help in bearish mood. Here is the calculation of cushion.
I will post the margin requirement next, as I am bit in hurry ...
Thanks for your continue interest and query, that helps me to re-look my strategy and trade.
I have little difficulty in understanding your question. Do you wish to say that had I chosen the 2:3 strategy during Jan' series, I would have suffered more loss?
I am selling 3 calls and not 3 puts, so it would help in bearish mood. Here is the calculation of cushion.
I will post the margin requirement next, as I am bit in hurry ...
I have little difficulty in understanding your question. Do you wish to say that had I chosen the 2:3 strategy during Jan' series, I would have suffered more loss?
I am selling 3 calls and not 3 puts, so it would help in bearish mood. Here is the calculation of cushion.
I will post the margin requirement next, as I am bit in hurry ...
See, Today VIX says, the market is more bearish...as also the trend says. Now, we do not know if the trend would be bearish or bullish by the end of Feb, nor can be estinate it. ( As you saw for the Jan series.. ard Dec end.. market was quite bullish.. we reached upto 5300, then it fell below 4900
from Dec to Jan.. the trend changed... which is very practical in today's scenario)
Now, since we can't foresay, if the current tread will persist till the Feb expiry or nor....should we really go for an add-in approach... or rather stick to the 1:1 apprach, where we giving equal probablity for rise-fall..
However, i strongly feel the add-in approach should be beneficial, if we actually plan to square off positions.. and not targeting for getting full premium...
There seem to have some problem with the image, you attached. I can't see the Image, could you pls attach the Cusion calcs. again?
Also post us about the margin req. ( both initial and MTM margin ) for the last months trade., you had.
Thanks.
I believe you are depending on VIX for the direction!!(Correct me if wrong)
VIX suggests implied volatility, here is how VIX is described at NSE
As of now volatility of 4500 PUT is 27.78% and of 5100 CALL is 20.87 ( I would request you to visit this option calculator and do the math as to confirm my calculation as well)
So my observation is that the market while calculating the PUT option premium consider the volatility at 27.72 % and while calculating premium for call option consider the volatility at 20.87. So, the market is more bias towards downside then upside. (And generally premium of PUT is higher then call as market can slide rapidly on any negative sentiment but takes efforts to go up)
So, to compensate the higher volatility of PUT I am selling more CALL.
As to margin requirement, I am not able access Angel Backoffice right now. However, I have kept 60,000 in cash and around 5,40,000-00 as collateral with Angel. During the the Jan' Trade I had consumed all margins of around Rs. 6 lacs.
NIFTY requires 7% of total lot values. Whereas highly volatile stocks like DLF, RNRL,SUZLOM require margin requirement of anywhere between 25% to 35% of their lot values. TATAMOTORS and TATASTEEL requires around 20% but on account of their huge lot-value they also eat up good amount of margin. I am allowed to leverage to twice then my total cash+collateral, but being on safer side I am not taking that risk.
I am attaching the PREMIUM CUSHION image again.
VIX suggests implied volatility, here is how VIX is described at NSE
As of now volatility of 4500 PUT is 27.78% and of 5100 CALL is 20.87 ( I would request you to visit this option calculator and do the math as to confirm my calculation as well)
So my observation is that the market while calculating the PUT option premium consider the volatility at 27.72 % and while calculating premium for call option consider the volatility at 20.87. So, the market is more bias towards downside then upside. (And generally premium of PUT is higher then call as market can slide rapidly on any negative sentiment but takes efforts to go up)
So, to compensate the higher volatility of PUT I am selling more CALL.
As to margin requirement, I am not able access Angel Backoffice right now. However, I have kept 60,000 in cash and around 5,40,000-00 as collateral with Angel. During the the Jan' Trade I had consumed all margins of around Rs. 6 lacs.
NIFTY requires 7% of total lot values. Whereas highly volatile stocks like DLF, RNRL,SUZLOM require margin requirement of anywhere between 25% to 35% of their lot values. TATAMOTORS and TATASTEEL requires around 20% but on account of their huge lot-value they also eat up good amount of margin. I am allowed to leverage to twice then my total cash+collateral, but being on safer side I am not taking that risk.
I am attaching the PREMIUM CUSHION image again.
That was very well explained JV
I liked the Option calculator, here we can know which what IV and other factors, which options are possibly over/under priced. Though, the market adjust very quickly and there is very less room it.. but still... its nice. we can weigh the sentiments.. and use it accordingly.
Thanks for making me clear abt the VIX.. and it actually shows the volatility for next whole month..
As option writer.. we shd be concerned for one things:
1. sell options when the volatiltiy is highest...so that u can gain higher premium and ensure that the options are never executed..
How often do u use technical charts for analysis... its more useful when u r buysing ooption n all.. and do u really care much abt the Greeks of Options.. ( delta, Gamma, etc ) ... kindlly share ur views
Keep posting.
I liked the Option calculator, here we can know which what IV and other factors, which options are possibly over/under priced. Though, the market adjust very quickly and there is very less room it.. but still... its nice. we can weigh the sentiments.. and use it accordingly.
Thanks for making me clear abt the VIX.. and it actually shows the volatility for next whole month..
As option writer.. we shd be concerned for one things:
1. sell options when the volatiltiy is highest...so that u can gain higher premium and ensure that the options are never executed..
How often do u use technical charts for analysis... its more useful when u r buysing ooption n all.. and do u really care much abt the Greeks of Options.. ( delta, Gamma, etc ) ... kindlly share ur views
Keep posting.
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