Picking up nickels in front of steamroller!!

[jvblogger]

I follow a very similar strategy to yours jv. I have a question for you, do you continue to sell options even when VIX is low as one has to sells closer options as premiums are lower?

I faced this issue at the end of last month with VIX's at super low levels.. still managed to scrape through this month though due to today's rise... too close for comfort though!

Glad to hear that you are following similar strategy!

Yes, I do sell options in low VIX. And you have observed correctly that in such low volatility period one has to sell near OTM options. Options sold during such period definitely creates problem when the volatility spikes suddenly in midway. But if you have proper risk management in place you can escape with little damage, and might little profit.

I too escaped with 4900 PE at the last moment!

 

[pradeqib]

Hi JV,

Very Pleased to see this thread .. I am interested in following this strategy. It will be useful if you can share your open positions for June series so that i can learn from that.

 

[jvblogger]

Hi JV,

Very Pleased to see this thread .. I am interested in following this strategy. It will be useful if you can share your open positions for June series so that i can learn from that.

Following positions are open for June'10

 

[spiritunit]

Do you close positions when it comes below Re.1 or wait till for expiry?

 

[jvblogger]

Do you close positions when it comes below Re.1 or wait till for expiry?

You will notice that often when the premium of an option fall to Re.1, then the option it far from the spot price and also there is little time is left to the expiry.

For example June 4000 PE , which I am holding, has closed today around Rs. 4.70. The 4000 PE is 1000 points far from the spot, therefore the premium carries only time value being nearly month away from the expiry.

Therefore mostly I do not square off position at Re.1 , unless I need the margin to free-up or for any other circumstances. Because squaring off also cost brokerage and other charges.

 

[MaxX]

Hi jv, noticed you write options at a whole lot of strikes. Can you tell me the risk management strategies that you use?

Seems like a quick V shaped reversal or continued sustained movement in one direction/market crash would be difficult to manage...

For eg. this month for may expiry when price slipped below 4900 PE, was in a quandary on what to do, if the market had continued to slip would have led to more losses... I personally would have gotten out of the puts (at a loss) had 4800 broken as TL would be broken, what strategy would you have used?

 

[jvblogger]

Hi jv, noticed you write options at a whole lot of strikes. Can you tell me the risk management strategies that you use?

Seems like a quick V shaped reversal or continued sustained movement in one direction/market crash would be difficult to manage...

For eg. this month for may expiry when price slipped below 4900 PE, was in a quandary on what to do, if the market had continued to slip would have led to more losses... I personally would have gotten out of the puts (at a loss) had 4800 broken as TL would be broken, what strategy would you have used?

I have mentioned my risk management method in earlier post. However there is no harm in explaining it again.

If you have notice I enter into strangle. I sell put and call in pair. Therefore I collect premium from both the sides.

Ordinarily my risk management method is to wait until the premium of increased to the total of the premium collected from both the side.

Suppose I have collected premium (I just remember I have not posted the outcome of the May series) of Rs. 20-00 from May 5400 CE and Rs. 20-00 from 4900 PE. Then total premium collected is Rs. 40-00. So, I in case the premium of either of the option reaches around Rs. 40-00 I would square off the loosing option. And mostly the premium of the other side's option would be negligible , so I might square off the other side's option as well, if there is chances of such bounce back.

Last month I had square off 4900 PE @ Rs.38-00 as the market was moving down fiercely and at one time move below 4800, its another matter it did not close below 4900.

In volatile time option seller has to keep keen eye on the premium and should be able to make quick decision. It is always better to square off a doubtful option, as in option selling profit is limited and loss is unlimited. So when you square off a position you know you are waiving limited profit against the risk of unlimited risk.

Thanks for your interest!

 

[rajsumi121]

if you want to get only 12 % per month .no need to sell option for that ..its very risky instrument .

 

[simple_trader]

Hello Experts,

Did you find any co-relation between having 5000 MAY PUT highest OI till 2/3 time of the series and ultimately NIFTY expired above it?

Of course many ran away towards the end when it lost OI (when we closed below 200 DMA).

 

[jvblogger]

if you want to get only 12 % per month .no need to sell option for that ..its very risky instrument .

Consider my parameters for Option Selling :
1. I do not have much hard cash/spare capital as I have invested them in long term equity. I sell options using the equity as collateral.
2. My job restricts me from accessing stock screen most of the trading hours.
3. I believe I am not good at technical analysis.
4. Option selling has so far provided consistent 4% monthly return on the collateral used.

Now considering my situation , kindly explain me suitable strategy where I can get 12% monthly return. I am very eager to learn it!

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BTW following is the outcome for May'10 series. It was very volatile month. I had to square off 4900 PE with loss of Rs.15-00