my option calls
- Thread starter bandlab2
- Start date
Sd_Singal, You are right with you views of booking profit asap. My belief is "Let profit run" (specially when odds are in my favour).
I am explaining my analysis of this trade below. There is nothing like absolute one way of playing in the market. But hope my explanation gives idea about my thought process.
To asses the risk of this position, this is how will go at this stage
1) What is the monthly ATR (avrg true range) of NIFTY? as of Sept, end, it is approximately 600 pts. That means, this is the average expected fluctuation of NIFTY in normal condition for next 1 month period.
2) We have already got 1.5 times of this range done in Oct.. i.e.(High-Low of Oct is approximately 900 i.e. 4000 minus 3100).
3) How many times in the history we had a month giving 1.5*ATR ? I looked at last 22 months of NIFTY range and ATR and found that only on 6 times we had 1.5*ATR months. 3 of them are after Q4-07.. That means, only 25% of the time I can have 1.5*ATR month i.e. 75% of time. 25% of the time monthly range will be <1.5ATR.
So my interpretation is == 75% chance that we have seen the extreme of Oct and 25% chance that we have not.
I also have other reasons from chart analysis to support that it is less likely to break below 3000 point in next 2 weeks. but will see consolidation now.
4) So if I stay with this position, then 75% chance that it will make more money for me everyday from now onward. As expiry approaches, option seller makes more money by just holding on to the position. Here I have chance of making 400 with 75% odds in my favour. 25% chance that I might loose the current profit of 93 (say 100).
That gives me expected return = 0.75*400 -0.25*100 = 275
5) To manage the risk and having sound sleep.. this is how I will do..
when I entered the trade, I had a loss limit that I can take on this trade. Say 50 rs.
So I will use that 50Rs and buy an OTM PUT of 3000 (beyond my BEven point) so that even if market falls, then loss of short straddle are covered by gain in OTM put.
Even if bandlab2 closes this position, due to my curiousity I would like to monitor this till the day of expiry.
Happy Trading.
I am explaining my analysis of this trade below. There is nothing like absolute one way of playing in the market. But hope my explanation gives idea about my thought process.
To asses the risk of this position, this is how will go at this stage
1) What is the monthly ATR (avrg true range) of NIFTY? as of Sept, end, it is approximately 600 pts. That means, this is the average expected fluctuation of NIFTY in normal condition for next 1 month period.
2) We have already got 1.5 times of this range done in Oct.. i.e.(High-Low of Oct is approximately 900 i.e. 4000 minus 3100).
3) How many times in the history we had a month giving 1.5*ATR ? I looked at last 22 months of NIFTY range and ATR and found that only on 6 times we had 1.5*ATR months. 3 of them are after Q4-07.. That means, only 25% of the time I can have 1.5*ATR month i.e. 75% of time. 25% of the time monthly range will be <1.5ATR.
So my interpretation is == 75% chance that we have seen the extreme of Oct and 25% chance that we have not.
I also have other reasons from chart analysis to support that it is less likely to break below 3000 point in next 2 weeks. but will see consolidation now.
4) So if I stay with this position, then 75% chance that it will make more money for me everyday from now onward. As expiry approaches, option seller makes more money by just holding on to the position. Here I have chance of making 400 with 75% odds in my favour. 25% chance that I might loose the current profit of 93 (say 100).
That gives me expected return = 0.75*400 -0.25*100 = 275
5) To manage the risk and having sound sleep.. this is how I will do..
when I entered the trade, I had a loss limit that I can take on this trade. Say 50 rs.
So I will use that 50Rs and buy an OTM PUT of 3000 (beyond my BEven point) so that even if market falls, then loss of short straddle are covered by gain in OTM put.
Even if bandlab2 closes this position, due to my curiousity I would like to monitor this till the day of expiry.
Happy Trading.
In principle, covered call is bullish strategy. It works when one continue to hold the stock at the same time, OTM call gives nice premium in the pocket.
In bearish market, covered call is not right strategy because, the stock can fall lot more then the premium that is recieved.
To the best of my knowledge, professionals use Collar in bearish market, not covered call.
Happy Trading.
In bearish market, covered call is not right strategy because, the stock can fall lot more then the premium that is recieved.
To the best of my knowledge, professionals use Collar in bearish market, not covered call.
Happy Trading.
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