Zerodha....

[saji oommen]

The following thread of AW10 would be helpful to you, IMO:

Low Risk Options

Thanks Murthy. I had gone through that and other threads earlier. It is a bit complicated with different strategies. What i am looking forward to is a simple overnight hedge for long call or put options. Just insurance for gap up/downs scenarios. Something like hc9001 mentioned for futures but i require for options.

Some times i find hedging with same quantity as long positions is not a sufficient insurance.

Any way this is zerodha thread so i cannot post my query here anymore

Regards

Saji

 

[NTrader42]

Thanks Murthy. I had gone through that and other threads earlier. It is a bit complicated with different strategies. What i am looking forward to is a simple overnight hedge for long call or put options. Just insurance for gap up/downs scenarios. Something like hc9001 mentioned for futures but i require for options.

Some times i find hedging with same quantity as long positions is not a sufficient insurance.

Any way this is zerodha thread so i cannot post my query here anymore

Regards

Saji

Hello Saji

Instead of using yet another instrument to hedge your long options position, just by reducing your position size you will create a very effective Hedge. Try and plot the diagrams and you will see it for your self. The overall cost of transaction will be also less. You can check it yourself with few examples.

Thanks

 

[saji oommen]

Hello Saji

Instead of using yet another instrument to hedge your long options position, just by reducing your position size you will create a very effective Hedge. Try and plot the diagrams and you will see it for your self. The overall cost of transaction will be also less. You can check it yourself with few examples.

Thanks

Thankyou NTrader42. Your suggestion regarding position size is a good advice.
I will work on it

Regards

Saji

 

[hc9001]

How to hedge against 'gap up/down' with only 'long option'?

Hi, Saji,

When u trade only Long in Options, it is Very Difficult to Hedging in overnight option trading because during big gap up/down, all following 4 would be against U
1.Directional Risk(Delta),2.Stock Price Change(Gama),3.Volatility Risk(Vega),4.Time Decay(Theta).

Now following are the solutions according to me to minimize Risk:-
1.Fighting against 1.Delta & 2.Gama
For overnight big gapup/down usual biggest risk is from 1.Delta & 2.Gamma
To neutralize Delta & 2.Gamma U can consider 3:1 or 4:1 position in Option & Future respectively.
For example when nifty future Closes near 4900 (say yesterday 4891.1)
Buy 1 lot nifty future against 3 or 4 lot bought 4900PE and Short Sell 1 lot nifty future against 3 or 4 lot bought 4900 CE.

2.Fighting against 3.Vega not advisable as it would be ur friend when u are in right direction with 'Long Option'.

3.Fighting against Time Decay: U can close ur position Weekly(Friday End) or B4 NSE Holiday and initiate Fresh Position next trading day. I use this strategy & this is very helpful also because big gap up/ down also happens @wk opening/after holiday.

Happy Trading.

 

[ajshare108]

Please clear : If i have a open postion in option trade against margin which i am getting against share, and keeping cash for MTM, Will Zerodha charge interest on margin amount i am utilising. if yes how much........

 

[Punter786]

Dear Zerodha,

Can we use third party trading software with you? Will it work? I just want to get rid of this bandwidth, resources and memory hogging NOW/NEST software.

Thanks

 

[GTji]

Dear Zerodha,

Can we use third party trading software with you? Will it work? I just want to get rid of this bandwidth, resources and memory hogging NOW/NEST software.

Thanks

I don't find NOW to be resource hungry, memory hogging, bandwidth eating at all. I use NOW and Excel, and also have AB open on my 1.6 GHz single core 5 year old Laptop. AB takes up most of the resources when I am working, scanning on it etc, while second is Excel (getting quotes from NOW) and third is NOW. I have 55 scrips open on NOW and it downloads around 65 mbs of quotes from 09:00 to 16:00. I would want NOW to update quotes more frequently if possible, in which case it will obviously take more bandwidth but I do not mind that.

 

[msa5678]

Re: How to hedge against 'gap up/down' with only 'long option'?

Hi, Saji,

When u trade only Long in Options, it is Very Difficult to Hedging in overnight option trading because during big gap up/down, all following 4 would be against U
1.Directional Risk(Delta),2.Stock Price Change(Gama),3.Volatility Risk(Vega),4.Time Decay(Theta).

Now following are the solutions according to me to minimize Risk:-
1.Fighting against 1.Delta & 2.Gama
For overnight big gapup/down usual biggest risk is from 1.Delta & 2.Gamma
To neutralize Delta & 2.Gamma U can consider 3:1 or 4:1 position in Option & Future respectively.
For example when nifty future Closes near 4900 (say yesterday 4891.1)
Buy 1 lot nifty future against 3 or 4 lot bought 4900PE and Short Sell 1 lot nifty future against 3 or 4 lot bought 4900 CE.

2.Fighting against 3.Vega not advisable as it would be ur friend when u are in right direction with 'Long Option'.

3.Fighting against Time Decay: U can close ur position Weekly(Friday End) or B4 NSE Holiday and initiate Fresh Position next trading day. I use this strategy & this is very helpful also because big gap up/ down also happens @wk opening/after holiday.

Happy Trading.

Dear Friend,

You have given such a good suggestion for protection against GAPS, that I copied this post in a Word file and saved it in my regular Trading Folder.

Thanks a Lot.

 

[saji oommen]

Re: How to hedge against 'gap up/down' with only 'long option'?

Hi, Saji,

When u trade only Long in Options, it is Very Difficult to Hedging in overnight option trading because during big gap up/down, all following 4 would be against U
1.Directional Risk(Delta),2.Stock Price Change(Gama),3.Volatility Risk(Vega),4.Time Decay(Theta).

Now following are the solutions according to me to minimize Risk:-
1.Fighting against 1.Delta & 2.Gama
For overnight big gapup/down usual biggest risk is from 1.Delta & 2.Gamma
To neutralize Delta & 2.Gamma U can consider 3:1 or 4:1 position in Option & Future respectively.
For example when nifty future Closes near 4900 (say yesterday 4891.1)
Buy 1 lot nifty future against 3 or 4 lot bought 4900PE and Short Sell 1 lot nifty future against 3 or 4 lot bought 4900 CE.

2.Fighting against 3.Vega not advisable as it would be ur friend when u are in right direction with 'Long Option'.

3.Fighting against Time Decay: U can close ur position Weekly(Friday End) or B4 NSE Holiday and initiate Fresh Position next trading day. I use this strategy & this is very helpful also because big gap up/ down also happens @wk opening/after holiday.

Happy Trading.

Hello hc9001
Thanks for excellent suggestions regarding hedging. Just a small query regarding the hedge ratio suggested by you. ie you wrote "For example when nifty future Closes near 4900 (say yesterday 4891.1)
Buy 1 lot nifty future against 3 or 4 lot bought 4900PE and Short Sell 1 lot nifty future against 3 or 4 lot bought 4900 CE."

My doubt is 1 lot nifty future against 3 or 4 lot bought 4900PE is enough or it should be more than 1 lot nifty future for 3 or 4 lot bought 4900PE say 2 lots which increases hedging costs .
Kindly clarify.

Regards

Saji

 

[TheDreamer]

Re: How to hedge against 'gap up/down' with only 'long option'?

Hi, Saji,

... ... ...

Now following are the solutions according to me to minimize Risk:-
1.Fighting against 1.Delta & 2.Gama
For overnight big gapup/down usual biggest risk is from 1.Delta & 2.Gamma
To neutralize Delta & 2.Gamma U can consider 3:1 or 4:1 position in Option & Future respectively.
For example when nifty future Closes near 4900 (say yesterday 4891.1)
Buy 1 lot nifty future against 3 or 4 lot bought 4900PE and Short Sell 1 lot nifty future against 3 or 4 lot bought 4900 CE.

... ... ...

Couldn't get your point on hedging... Are you trying to hedge option positions with futures? But, if the opposite is true, please explain your statements with real values of delta.

Moreover I would suggest to balance open option positions with option spreads (bull, bear or ratio). IMHO, options should be used mainly for hedging purpose (that too short positions are the best)...