Option trading vs Future trading - pros and cons

traderniftybull

Well-Known Member
#1
It is said that options are only for hedging or for writing only. One should not buy naked options, One should only write options. One should not trade in options. And one should trade in futures only.

So, I shall be thankful if trader members, please post your views/comments on pros and cons of option trading (buying and writing) and future trading. Also mention about the benefits of option writing, as well (with examples)
 

mmca2006

Active Member
#2
I have done ALL :):)though never with naked option writing or naked future but always with hedge. When I trade with trend following system then I prefer to trade debit spread, buying ATM and selling OTM , rather than buying naked Call or Put , at least it gives me some psychological comfort and helps me trade without in a hurry . I also traded future with collar position , though it is hedged , sometime a big unrealised loss makes me nervous . Buying naked ATM option may be profitable in extreme bull or bear market otherwise time value will eat all profit. Credit spread by selling ATM and buying OTM may be a preferred option. Naked future or option trading may be risky however it depends on individual traders psychology and size of pocket :D:D
 
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traderniftybull

Well-Known Member
#3
Thanks mmca bro, for your comments and views.
But you are trading with hedging and mostly spreads etc.

You said
"Buying naked ATM option may be profitable in extreme bull or bear market otherwise time value will eat all profit."
Agreed but in extreme bull or bear market these call and put, gives you bumper profit, and as far as time value is concerned, how much is it in initial days, you will hardly notice it during daily price movement.
But one will also notice change in premium in future values, and many time, futures price are at discount, as well. And future premium also decreases day per day, as we approach expiry day. So to say about time decay only for options, well........
 

Nikhil Dogra

Well-Known Member
#4
the game is rigged , puts becho toh upar jaati hai aur agar khareedo toh neeche aati hai :woot: , call khareedo toh dheere dheere upar jaati hai aur agar becho toh upar pataka mar deti hai :rage: I trade naked options intraday but with quick turnaround times however positional trades are always credit or debit spreads as per a view on volatility as well.

Pros of options :-
Basically we can select delta as per our preference i.e. reduce leverage to price change or we can trade a synthetic mini nifty
Low buying margin i.e we can buy deep ITM option to trade same as future minus the margin requirement of future

Cons of options :-
Its rigged game with time always against the buyer, higher margin for sellers & not to mention the hidden monkey - IVs
 
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traderniftybull

Well-Known Member
#5
When nifty future premium (in regular monthly trade) reduces form +40 to +10 to 0 to -5 or -10 (sometimes) no one complains, no eye brow raises
But
When nifty option value decreases from 50 to 10 (and that too if market remains sideways or there is not much movement in the direction), every one talks of time decay.

Why such a discrimination.
 

mmca2006

Active Member
#6
When nifty future premium (in regular monthly trade) reduces form +40 to +10 to 0 to -5 or -10 (sometimes) no one complains, no eye brow raises
But
When nifty option value decreases from 50 to 10 (and that too if market remains sideways or there is not much movement in the direction), every one talks of time decay.

Why such a discrimination.
I agree .. there is also reduction in future premium and that too is of good amount. However in stock option ,after buying ATM option when market goes in my favour I usually face problem to sale it because of lack of liquidity and wide spread between ask and bid :(:(, though same problem i normally face when I sale option and market goes against me , many time I didnot get good price to cover it because of wide spread. Now a days I am doing some collar trade, + future + otm put - otm call to get back the price of the put , getting same pay off of bull call spread but not facing that problem of wide spread at the time of option selling :)
 

okabira

Well-Known Member
#7
HI ..

Q1 ]] Can any one tell me ... what is the Demerit of buying Deep OTM calls / puts ??
No option selling .. just buying ... whats the pros and cons ?
[ I know something is wrong with OTM .. otherwise all would have traded OTM's and gone rich ...]



EX : I BUY 120 Banknifty26800CE @ 1.80

so invested = 216 ..

Currently banknifty price = 25626. I am sure BN will cross 26000 before expiry...

Here , MAX loss = 216 , i.e if CE goes to 0 .. right ?
=====
Not a trade recommendations
 

okabira

Well-Known Member
#8
Q2 ]]] Exercising options means Squaring Off position right ?? [Total - newbie DUMB question ]

Suppose I Have bought a BN28000CE at 50 .. and total invested is 2000.
and call goes to 5 ..
So here my loss is -1800 right now
Max Loss is -2000 ... right ? hain na ?

>> on expiry day BN28000CE closed on 2 .. a total loss of 1920 .. and didn't square off my position ...
whats going to be its implication on Pnl and on TAX .. any higher STT's or other tax to be paid ?
 

traderniftybull

Well-Known Member
#9
Yes, max loss will be 216.
Bhai buying deep OTM options, that too of weekly series, wont give you profit, it will go into loss, unless there is some very strong favourable move.
After Monday, weekly option price falls drastically, if not in favour.

In the example cited by you, even BN moves to 26000, it wont benefit 26800C
 

okabira

Well-Known Member
#10
Yes, max loss will be 216.
............. cited by you, even BN moves to 26000, it wont benefit 26800C
Ok Bro .
Q3 ]] what about ATM and near OTM options in BN.. for DAY TRADING... anyone does this here ?
[[[ obviously ppl trade atm , otm .. I am asking for without Hedging it and making it straddle,strangle , guts,butterfly,spread etc etc ... just simple 1 trade ]]]]
pl. mentions pros n cons
 
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