PUT and CALL options

[timepass]

Today: 25.05.2013

Nifty at 5983.55

The prices according to the NSE page for those options, expiring 30 May, is as following:

6000 put is at 52.25
6000 call is at 41.70

Makes a total of 93.95

Yesterday it was a total of 85.05

So something is going on even if market not moved.

Dan, today is a trading holiday. The values are the same as yesterday (24th May), as can be checked in Columbus's post No. 719 in this thread.

On 23rd, the total was 120.65, as can be seen in post no. 716 in this thread.

NSE page for Nifty Options Chain : http://www.nseindia.com/live_market...tionKeys.jsp?symbol=NIFTY&instrument=-&date=-

 

[columbus]

Re: May.24 MAY-series Day.20 Nifty=5984 (17)

One more thing, for calculating options greek you have used different volatility 22% and 18% respectively and time to expiry is also stated as 4 days. IMO time to expiry should be 6 days and volatility is around 19.5 approx. Correct me if I'm worng.

Hi,
please elaborate the statement that puts are stronger, it gives 2 implications.
Atm theta of 6000 CE is -4.72 and 6000 PE is -4.1.
1st implication is that call will break faster as theta is high, so if we carry long in both call and put, value of erosion will be high in call(assuming market remains constant).
2nd implication is directional, which members here are more concerned, I mean to say by above data which I've provided did you mean to say that direction of the market is favouring puts?? and in that sense (be it theoretically puts are stronger.)

Hi ashu,

The question which options are stronger , 5900PE or 6000CE?Since Mon,Tues,
Wed and Thrus are left .I feel 4 Days is correct.

Volatility is changed for different values and 22% yielded the 5900PE value
as 20 Rs,which is as per NSE's website.So 22% is taken.Since CALLs have
a lower Volatility by 3 or 4 notches down ,a value of 18% is taken.By taking
a higher volatility value CALLs tend to cost more and theta value is still more.Volatility in case of NIFTY tend to vary in large range.

 

[ashu1234]

Re: May.24 MAY-series Day.20 Nifty=5984 (17)

Hi ashu,

The question which options are stronger , 5900PE or 6000CE?Since Mon,Tues,
Wed and Thrus are left .I feel 4 Days is correct.

Volatility is changed for different values and 22% yielded the 5900PE value
as 20 Rs,which is as per NSE's website.So 22% is taken.Since CALLs have
a lower Volatility by 3 or 4 notches down ,a value of 18% is taken.By taking
a higher volatility value CALLs tend to cost more and theta value is still more.Volatility in case of NIFTY tend to vary in large range.

Well what I know and have taught by my mentors who are basically option traders is that Saturday and Sunday do count for time to expiry for Nifty, you'll always get benefit of time decay on holidays if you are a writer.
And again you are changing volatility to suit different strikes of call/put option, which is wrong. The volatility which is to be punched in the black scholes formula is a constant figure, after doing that we get different IV of each option. I'm sorry to say but figures that you are using to price in option are flawed. Check here the black scholes option forumla and see what volatility is.
http://en.wikipedia.org/wiki/Black–Scholes

 

[ashu1234]

Re: May.24 MAY-series Day.20 Nifty=5984 (17)

Hi ashu,
Volatility is changed for different values and 22% yielded the 5900PE value
as 20 Rs,which is as per NSE's website.So 22% is taken.

Then why are you using Black scholes formula, to arrive at the price shown by NSE or to arrive theoretical or ideal price of the option which your calculator clearly mentions in the image. Ideally we use these calculators to see what's the difference between actual and theoretical price and the logic behind the price(over and under pricing of option) is reflected in IV of individual option strikes and its greeks.

 

[columbus]

Re: May.24 MAY-series Day.20 Nifty=5984 (17)

Then why are you using Black scholes formula, to arrive at the price shown by NSE or to arrive theoretical or ideal price of the option which your calculator clearly mentions in the image. Ideally we use these calculators to see what's the difference between actual and theoretical price and the logic behind the price(over and under pricing of option) is reflected in IV of individual option strikes and its greeks.

Hi Ashu,

The volatility values are changed ,so that they match ,ACTUAL value.
Then THETAs are compared.
These are Theoretical Values ,but in Markets , EMOTIONS run high.

 

[ashu1234]

Re: May.24 MAY-series Day.20 Nifty=5984 (17)

Hi Ashu,

The volatility values are changed ,so that they match ,ACTUAL value.
Then THETAs are compared.
These are Theoretical Values ,but in Markets , EMOTIONS run high.

Still there's no need to change volatility value, as you can see you do get the put value right, but not the value of call option(5900 put 20 Rs but not 5900 call). So no particular value will do the trick, its better to go through the actual concept in which we use the original volatility of the underlying and not the IV of the options and do the math. I hope you understand my point.

 

[aditya14]

Seriously by the time u guys put all these values in the trade train would have left the station.Columbus is right in markets Emotions run high.

Just put on a trade seeing the IV and Delta.Theta is a tricky business it only collapses in last half hour on regular days.

 

[ashu1234]

Seriously by the time u guys put all these values in the trade train would have left the station.Columbus is right in markets Emotions run high.

Just put on a trade seeing the IV and Delta.Theta is a tricky business it only collapses in last half hour on regular days.

Hi aditya,
Firstly the whole process may seem complicated but in reality it isn't. There are plenty of software which do the math in real time, and secondly option greeks are meant to exploit market inefficiency i.e some options are over-priced and some are under-priced so it gives edge to use option strategies to exploit it to your advantage, it was never meant to give directional edge to traders.

 

[DanPickUp]

Seriously by the time u guys put all these values in the trade train would have left the station.Columbus is right in markets Emotions run high.

Just put on a trade seeing the IV and Delta.Theta is a tricky business it only collapses in last half hour on regular days.

@Aditya

If you just want to take a trade, then all the math is not needed and you go for the itm options, as delta is higher.

That at least is posted and told in most Indian forums.

But this is just the pure gambling way and in most cases a way with market orders and no limit orders, as it is done mostly on the emotional side and on some TA.

There is a far better way to gamble and that is doing it through tape reading. I do not know many who gamble that way, but if you want to gamble, then that is one of the better ways to do so. And by the way: I do not say the best, but a better way.

I fully support Ashus view and comment about the subject. Professinal option matrixes give you the edge to test and to see at glance what the option greek numbers are. That does not take any time to analyze when you do it all the time. Could post more on that subject, but most of you do any way not use such matrixes, so will stop here on the matrix subject.

For positional trading, it is quit important to work with formulas, math and very defined prices. It is not so difficult to predict if vola will go up or down. And at the moment it comes to real trading, means placing orders in the market: You most of the time will not get the highest vola or the lowest vola price with your options as you most of the time not will get the absolute top or low with your future prices. That is a fact and nothing to think much about. (Bid and ask and some where in between you place your orders / common sense)

So finally: If you want to jump in to an option trade just like that, that is yours and most others option traders choice, as most have no deeper knowledge and understanding how to do it in other ways. It is what most option traders do with the hope to nail the trade and make a quick gain. Nothing else with no plan behind it. Pure emotional greed and hope built on TA patterns.

May I ask you: How many have you seen trading like that and standing the fight for a long time? How many post here there trading diary and how many of them are successfully fighting the market with that behavior?

Take care / DanPickUp

 

[aditya14]

@Aditya

If you just want to take a trade, then all the math is not needed and you go for the itm options, as delta is higher.

That at least is posted and told in most Indian forums.

But this is just the pure gambling way and in most cases a way with market orders and no limit orders, as it is done mostly on the emotional side and on some TA.

There is a far better way to gamble and that is doing it through tape reading. I do not know many who gamble that way, but if you want to gamble, then that is one of the better ways to do so. And by the way: I do not say the best, but a better way.

I fully support Ashus view and comment about the subject. Professinal option matrixes give you the edge to test and to see at glance what the option greek numbers are. That does not take any time to analyze when you do it all the time. Could post more on that subject, but most of you do any way not use such matrixes, so will stop here on the matrix subject.

For positional trading, it is quit important to work with formulas, math and very defined prices. It is not so difficult to predict if vola will go up or down. And at the moment it comes to real trading, means placing orders in the market: You most of the time will not get the highest vola or the lowest vola price with your options as you most of the time not will get the absolute top or low with your future prices. That is a fact and nothing to think much about. (Bid and ask and some where in between you place your orders / common sense)

So finally: If you want to jump in to an option trade just like that, that is yours and most others option traders choice, as most have no deeper knowledge and understanding how to do it in other ways. It is what most option traders do with the hope to nail the trade and make a quick gain. Nothing else with no plan behind it. Pure emotional greed and hope built on TA patterns.

May I ask you: How many have you seen trading like that and standing the fight for a long time? How many post here there trading diary and how many of them are successfully fighting the market with that behavior?

Take care / DanPickUp

Thanks Dan for a detailed reply and I`m a fan of yours.
I have been trading options for past 4 years now.What i meant was that overanalyzing to get the over/underpriced asset is impossible as markets are too quick now to fill the gaps.The only thing to consider while trading options is :
1) IV
2) Delta
3) Gamma
and the SL based on these 3 .

Of course stock market is gambling and nothing else(fact...) as long as I make money I`ll do this gambling rather than betting on horses.Tape reading is what i do on expiry and it works well for me.