Picking up nickels in front of steamroller!!

[jvblogger]

Thanks for your constant encouragement and interest.

Option calculators are very useful, because I analysis premium data after the trading time or during holidays and after that I execute trades. Therefore you dont need to (can't in real time as well) calculate IV for every tick. If there is significant movement in stock price at the end of the day, you can always calculate to see the change IV .

Few articles on option volatility...
http://www.trading-plan.com/options_volatility.html
https://www.redoption.com/implied_volatility_explanations.php

Ordinarily higher volatility means probability for higher movement in stock price and therefore option writers charge higher premium for the higher risk they are taking.

High or low volatility, both have its advantages and disadvantages. During high volatility option writer needs to be more alert and ready to adjust the trades or booking profit early.

One more principal I will apply after the volatility of Jan'10, that if my profit is around 80% I would book the profit (Though I had read it earlier now I understood ).

I view chart and do TA daily at least for few minutes to see change in trend if any. And before entering a trade I do TA well.

One needs to understand the Greeks well, and once you understand and become somewhat experienced in option pricing then perhaps it is not necessary to view them daily as the Greeks are inbuilt in the option premium and show the calculation of different values.

An option writer should give bit more focus to Theta, it is related to option time decay.

http://optiongenius.com/blog/how-does-option-time-decay-work/

 

[kesavan100]

Can anyone please tell me which PE strike price i need to buy on coming monday and how much we can expect NIFTY can go down .

Regards,
K7

 

[jvblogger]

Can anyone please tell me which PE strike price i need to buy on coming monday and how much we can expect NIFTY can go down .

Regards,
K7

In fact, we are here discussing about selling options , instead of buying and I am concerned more with where NIFTY won't go instead where it will.

On serious note, where and how far NIFTY will go, is everbody's guess. It would not be prudent to trade on someone else's analysis. Please try to do your own analysis and dont be afraid of wrong on your own analysis then betting on others analysis.

Best of luck!!

 

[samip2u]

Thanks for your constant encouragement and interest.

Option calculators are very useful, because I analysis premium data after the trading time or during holidays and after that I execute trades. Therefore you dont need to (can't in real time as well) calculate IV for every tick. If there is significant movement in stock price at the end of the day, you can always calculate to see the change IV .

Few articles on option volatility...
http://www.trading-plan.com/options_volatility.html
https://www.redoption.com/implied_volatility_explanations.php

Ordinarily higher volatility means probability for higher movement in stock price and therefore option writers charge higher premium for the higher risk they are taking.

High or low volatility, both have its advantages and disadvantages. During high volatility option writer needs to be more alert and ready to adjust the trades or booking profit early.

One more principal I will apply after the volatility of Jan'10, that if my profit is around 80% I would book the profit (Though I had read it earlier now I understood ).

I view chart and do TA daily at least for few minutes to see change in trend if any. And before entering a trade I do TA well.

One needs to understand the Greeks well, and once you understand and become somewhat experienced in option pricing then perhaps it is not necessary to view them daily as the Greeks are inbuilt in the option premium and show the calculation of different values.

An option writer should give bit more focus to Theta, it is related to option time decay.

http://optiongenius.com/blog/how-does-option-time-decay-work/

those links were nice.
what are the sources do you use for evaluating the charts for TA. one shource is http://www.icharts.in/charts.html, where you can plot nifty data for 1M,3M,6M etc.....
To be frank, i find it difficult to analyse... maybe i can get the R/H levels... but those candlesticks and all dosn't mae much sense to me...

Do you know any better source for the basis understanding...??

Moreover.. as option writer... u r more concerned.. abt pocketing the premium collected, so i guess, maybe at best you tr to anticipate the posibilities for those options getting into ITM... so that u can close positions... as when u feel , right ?

As far as Greeks of options are concerned.... how does it matter for option writters.... i think .. volatility shd be enuf.. to find the right time to write the options... does. other factors affect the timing..??

 

[jvblogger]

those links were nice.
what are the sources do you use for evaluating the charts for TA. one shource is http://www.icharts.in/charts.html, where you can plot nifty data for 1M,3M,6M etc.....
To be frank, i find it difficult to analyse... maybe i can get the R/H levels... but those candlesticks and all dosn't mae much sense to me...

Do you know any better source for the basis understanding...??

Moreover.. as option writer... u r more concerned.. abt pocketing the premium collected, so i guess, maybe at best you tr to anticipate the posibilities for those options getting into ITM... so that u can close positions... as when u feel , right ?

As far as Greeks of options are concerned.... how does it matter for option writters.... i think .. volatility shd be enuf.. to find the right time to write the options... does. other factors affect the timing..??

I am glad you found them useful. I am always amazed by the wealth of information available on the net on any subject under the sun.

I also use icharts.in and if you are registered(free registration) you can also used Javabased charting of icharts.in. In premium services they provide NIFTY options chart also, I have subscribed for one month and it provides NIFTY 1-2-3 months put and call options which I need to see how useful it will be.

Another website is http://www.investbulls.com/ where you can register free ,this site also appear to use the same chart-drawing software as icharts.in, but they provide free intra-day chart which is useful.

Another free site is http://www.profitindicators.com/ which provides various indicators on Indian stocks and it seems interesting. I have just started using, you also might find this useful as well.

No wonder you are finding difficult to analysis. All you need to put more chart viewing regularly ,daily if possible. More you will analysis you will find easy to understand. There are plenty of sites explaining technical analysis . Chartschool is one of my favorite site.

http://www.optiongenius.com/ is another interesting website on option selling strategy. It is US based site, its free lessons are worth reading, you will need to register to get the free lessons.

As to anticipating and analyzing charts and target.

My understanding is that I need to see where the stock/NIFTY will not go. As against buying a stock or NIFTY I have to be as precise as possible to take maximum benefit of the anticipated move.

Whereas while selling option I need not to be precisely correct as buying option (only thing I have to see that I am not precisely wrong ). I can analysis broadly. Suppose considering the present scenario (at the end of Jan' series and when market started falling around 27-28) after NIFTY fall below 5000 and then 4900, 5200 upwards target seems difficult considering the support of 5000 was broken and become resistance at least for short time. Therefore selling 5200 call seemed safe bet to me and will remain safe bet till 5000 remains as resistance.

Therefore, while selling option first think as option buyer , where the underlying can go and after your best prediction as buyer sell above the target you find as buyer. Ofcourse it is my strategy and I am still learning so use your understanding and share your analysis method.

As to Greeks. Answer this question. How far traffic/road signals matter to a driver? Once you know them you dont pay much attention to them but if you drive without knowing them there is large possibility creating havoc.

Thanks for asking and continue interest.

Good night!!

 

[mylaianand]

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

Hi jvblogger, can you let me know how you get the implied volatility values for specific call/put strike prices and expirations?

Thanks man,

--mylai

 

[jvblogger]

There are plenty of option calculator on the net. Here is the one which I use http://www.numa.com/cgi-bin/numa/calc_op.pl

 

[Capricorn]

A literal transalation of the name of the thread " Bhap chalit roller ke aage se kaudi uthana"

To bhaiyya kitna kaudi uthai liye abhi tak "Read with bhojpuri accent":lol:

 

[jvblogger]

Feb series fared decently for me.

Observations for Feb series.

1. I committed one mistake. The mistake was not to follow the trade strategy I had planned. I execute trade for both side, CALL and PUT simultaneously to have some buffer. However, this month I made mistake by selling TATASTEEL 500 PUT and then waited for TATASTEEL to move up before I would sell CALL, to collect higher premium. The script moved down instead and at one point I was in loss. Fortunately the stock settled and did not go anywhere near 500.

2. Last month at one point my profit was around 80% of the total premium collected and the volatile slide in the market reduced the profit around 50%, so I had decided to book profit if profit is around 80% and there is still good amount of time is left in the expiry. I booked profit at that level around 10 days back, so it was good lesson.

3. I sell both side options to give buffer to other side. So my loss bearing level would be total premium collected from both side. This month DLF moved down quickly but giving sufficient time to square off the losing trade without any loss.

 

[jvblogger]

Option writing for March'10 provided expected gains.