Why trade Options if volume is so low

[vvv0501]

With a bit of directional play involved one can build a credit spread legging into one side at a time (intraday).
Sanjay

Hi there Sanjay,

Yes I agree that with a little bit of experience one can time the entry into the different legs of the spread in such a way that it is impossible to lose money on the spread. Only sad thing about our options market is the amount of margin that you have to put up for credit spread. I understand that in the US options market, margin blocked on a credit spread is exactly equal to max possible risk and nothing more than that. Of course, the spread is treated as a single position there. The price is quoted as a spread and a single order will buy both legs of the spread. It is a pity that we have no such system.

 

[vvv0501]

Can you explain it in bit more details?

The key fact to consider is that the actively traded options in our market is always ones that expire in the current month. This means that time decay starts to play an important role in the life of these options right from the beginning and especially during expiry week.
During expiry week, holders of long positions in OTM options will be anxious to square of their positions while the option is still worth something. Holders of short OTM options on the other hand, will simply let it expire. This results in heavy selling pressure.
Also, there will be no buying interest as nobody will take a fresh long in an OTM current month option close to expiry.
The combined effect of selling pressure and lack of buying will cause these OTM options to lose value rapidly during expiry week. As a trader we look to take advantage of this fact by initiating credit spread positions 5-10 days prior to expiry in the hope that the options we write will lose value quickly or expire worthless.
I hope that is clearer.

 

[THETRADER]

try to catch wat trader is trying/asking to point instead of leg pulling!!!!!
nt a good habit, (observation frm past comments on various topics)

He was just telling the fact, where's the question of leg pulling? You just download derivative bhav copy and check it out for yourself. BTW, Oxusmoroz is pretty helpful for what I've known of him.

 

[jdm]

try to catch wat trader is trying/asking to point instead of leg pulling!!!!!
nt a good habit, (observation frm past comments on various topics)

oxy is the most decent guy in the forum. he is perhaps among the very few of the members here in traderji who actually backs his words with adequeate quantitive evidence.

btw, can you pls be a bit descriptive about your past observations, any links or so, which supports your statement.

 

[beginner_av]

He was just telling the fact, where's the question of leg pulling? You just download derivative bhav copy and check it out for yourself. BTW, Oxusmoroz is pretty helpful for what I've known of him.

Just my answer, though late, or else would have added that the guy in question has never seen/traded options in indian mkt in his life!

 

[AakashM]

Thanks for the replies, guys. It was very helpful.

I've just started reading the book "Option Volatility and Pricing" by Sheldon Natenberg. It's an amazing book. I think after reading more, maybe I can try some of the strategies talked about in this thread.

Thanks!
Aakash

 

[beginner_av]

a very good book indeed!

 

[SGM]

Hi there Sanjay,

Yes I agree that with a little bit of experience one can time the entry into the different legs of the spread in such a way that it is impossible to lose money on the spread. Only sad thing about our options market is the amount of margin that you have to put up for credit spread. I understand that in the US options market, margin blocked on a credit spread is exactly equal to max possible risk and nothing more than that. Of course, the spread is treated as a single position there. The price is quoted as a spread and a single order will buy both legs of the spread. It is a pity that we have no such system.

Yes it would be nice to get a quote on spreads directly ...

And yes it would be nice if the broker accepted the concept of "Value at Risk" and agreed to take only the SPAN Margin on the nett delta ...

And it would be nice to pay % brokerage only on the premium amount ...

But thats a wish list, we all wish someday it will happen, meanwhile atleast on the STT front we are getting some relief

Regards
Sanjay

 

[beginner_av]

not a relief, but a necessity. presently even if you get Rs 800 by writing a call, you pay 80-90 as STT - more than 10%.

 

[SavantGarde]

Brokerage Is Being Charged Only On The Premium.

This Has BeenIn Effect Ever Since The Notification Was Issued By NSE

SavantGarde

Yes it would be nice to get a quote on spreads directly ...

And yes it would be nice if the broker accepted the concept of "Value at Risk" and agreed to take only the SPAN Margin on the nett delta ...

And it would be nice to pay % brokerage only on the premium amount ...

But thats a wish list, we all wish someday it will happen, meanwhile atleast on the STT front we are getting some relief

Regards
Sanjay