Greeks- why they are important?

[yoogi]

well, now I am little confused about your strategy. If you sell Nifty-put 4300 for 100 rs. Let us say nifty has gone below 4200. Now on final day, if it closes like that, you need to pay 100 rs per nifty.

If it is to be stock settled, you need to pass the stock. How can you keep it for long term.

 

[srikanth_kandalam]

My assumption was selling a put to buy a stock- not index.

For example if I am interested in reliance for the longer haul- but let us assume I would prefer to get it at 1800 ( current price 1982)- then what I would do is to sell the 1800 Put. If RIL does not dip below 1800- I keep the premium, if it does I get the stock and keep long term ( or can even sell Covered calls). Obviously the choice of strike, IV etc are to be selected carefully. If you are VERY bullish- go ahead sell a ATM put.

This also applies to any stock you are bullish- instead of buying the stock outright- you can sell the puts, and make money- afterall there is a limitations to how many stocks you pursue!

 

[yoogi]

Lets start a paper trade then. (I also like it. But need some guidance/ experience to get hold of this logic).

OPT-NIFTY-27-Sep-2007-4400-PE is now 57.50 rs.
Nifty Spot is 4516
Nifty-Sep Future is 4502
Nifty Oct future is 4485

I would have traditionally bought Oct futures 4485 if I am bullish.

Now I have sold OPT-NIFTY-27-Sep-2007-4400-PE for 57 rs. Lets see how this translates.

 

[srikanth_kandalam]

Lets start a paper trade then. (I also like it. But need some guidance/ experience to get hold of this logic).

OPT-NIFTY-27-Sep-2007-4400-PE is now 57.50 rs.
Nifty Spot is 4516
Nifty-Sep Future is 4502
Nifty Oct future is 4485

I would have traditionally bought Oct futures 4485 if I am bullish.

Now I have sold OPT-NIFTY-27-Sep-2007-4400-PE for 57 rs. Lets see how this translates.

Yoogi First things first- what is the range that you are expecting at expiration? Take a look at the charts. At 4500 you have a series of Dojis near a resitance level- let us assume you are still bullidh- you will be contending with serious resistance at 4600. Ie If you are right then there is a possibility of going up by 100 points but if things dont work then there is a chance of 200-300 point drop. Are you comfortable with that? Because it is not important what everyone thinks- what do you think? And I would differ with you on being bullish because of the candle charts I see.

http://www.icharts.in/charts.html

4400 seems like intermediate support- but my personal opinion is that if there is a down trend you will see more downside.


Let us assume you remain convinced of your position- first pick the strike price based on IV - since you are selling make sure you are not selling options strikes that have high IV.

Second get to know your Delta- in your case it will be under 40 - perhaps in 30-35 range. You need to monitor this- and if you feel uncomforable you need to buy the futures to neutralize your negative delta- if you go wrong that is. Since you sold puts you will have -ve deltas. and if you have to change your stance ( because you changed your outlook) you offset these negative deltas- by getting a long position and neutralizing the deltas ( you sold). Because if your puts become in the money and start going down further- you will be getting even more negative delta! The simpler option is to set a stop limit- and get out.

This is a series of battles in a war- the idea is to lose a battle rather than lose the war!

 

[srikanth_kandalam]

Also another nuance- look at the max OI for calls and for puts ( you have to look at current expiration). The strike price where calls have the max OI will be acting as resistance. and for the puts it will act as support. Remember this is "collective" wisdom of the CURRENT expectation. So you need to monitor your position daily - atleast.

The question you always have to ask- do you believe the same thing you believed yesterday? And it is not simple to do- as we do have emotions and sometimes dont accept "defeat" easily. If you want to be successful- you should check your ego and emotions at the door. The question is will you take a fresh position today- and will it be the same as what you did yesterday- the moment your answer changes then you need to take corrective action.

 

[yoogi]

Usually if there is a fall of 80-120 points before end of this month, I probably would buy, I will wait out 3-4 weeks and with about 300 points stop loss. Probably would carry it for a quarter.

It is only 16 days before expiry and as these channels says ony fed rate cut/unchange is the only possible event that can trigger a move. I dont think we will be affected much in that. No matter what happens there, we might see a fresh up move.

I could be wrong and as rightly said, I might think otherwise if I see a 160 points gap down opening after sept-18.


I am just thinking 4350 is just below fair value which is roughly about 4400. Selling 4400 put for 57 is akin to buying a Future for 4343 right, except that I need to meet losses but wont get gains. Thats ok with me, because if it goes below 4343, I will become long on next futures and I will get my price back. The only problem will be ending up

somewhere between 4350-4400, where brokerage eats most of earnings.

 

[chander_rb]

Let us assume you remain convinced of your position- first pick the strike price based on IV - since you are selling make sure you are not selling options strikes that have high IV.

Hello Mr. Srikanth,

Isn't high IV good for a option seller as he/she gets a better premium. Subsequently if the IV falls, it is better for buying back ... just in case.


Regards,

chander_rb

 

[yoogi]

About High IV / Low IV:
You get what you pay for, in an ideal market.


With your strategy, I am not a traditional option seller. Just looking to buy futures at lower price. I should only be happy to see the index at lower price (although not too low. A stop loss of 200 points could help me to hold up to 4143 ) , so that I can reap better rewards later.

If index doesn't fall, I get the consolation of index premium. Now , that is being bullish. Isnt it?

 

[srikanth_kandalam]

I am sorry for the mistake- it is obvious that if you sell Puts you will have positive delta- and the hedge would be to neutralize this in case the trade goes bad.

I am not sure the next part of your comments are warranted. These are by no means "exotic" concepts- may be it is in India.

I am not going to nit pick- but I have seen too much of silliness on options here. For your info I am trading options in the US since a decade- I am not going to suggest I know everything, but I dont expect to learn from this board!

I guess this is why people stop posting- and perhaps they are justifiied. Attack the logic- no problem with that. frankly we dont even have to worry about these things here- because we get our Position greeks on a realtime basis- and there is hardly any need to calculate etc.

 

[yoogi]

Now, the underlying (index) is going up and the 4400-put is going down. So I am set to keep the premium as consolation. It is too early to conclude anything.

I feel this is risk-limited reward limited strategy. I cant complain though.