Options - Price and premiums

[gmt900]

Hi Lemondew,
Just went thr' this trade.
Very interesting !
Would like to share an observation.
On the first day of July series BankNifty straddle at 18,000 would have
fetched about 750 points.
BEPs would be 17,250/18,750, +/- 4 %.
Since the expiry is 28 days away, one can adjust trade in case of substantial
movement in BNF.
Ideally, one can try to keep the trade delta neutral.

 

[mohan.sic]

My observations have been. When IVs are high stocks generally dont expire more than the combined premium of straddle. Thats 1 in 4:5 trades provided you enter right time.

Let us keep the observation part aside for time being.

Is there any reason to assume that Price trades in the range ( to the extent of combined premium of straddle )

I say this because it is very common we see many stocks move in one direction for a certain period.

I am not saying about the Infy example on its result day. That makes sense because Result day is an event and premiums are built for the next day news. But expiry is not an event related to price move.

 

[TradeOptions]

Let us keep the observation part aside for time being.

Is there any reason to assume that Price trades in the range ( to the extent of combined premium of straddle )

I say this because it is very common we see many stocks move in one direction for a certain period.

I am not saying about the Infy example on its result day. That makes sense because Result day is an event and premiums are built for the next day news. But expiry is not an event related to price move.

lemon brother, thank you for sharing your insights with us.

Thanks for raising the important point mohan. I too have similar issues sometimes. I have noticed that a few friends who are Experts in options trading and know a great deal about various complex strategies and option greeks etc. start to focus more on those things only and the analysis of the underlying stock or future, becomes secondary to them. Whereas in realty, the major portion of the movement in any options, happens or is caused because of the big movements in the underlying. The kind of relative strength and trendiness etc. of the underlying are very important in my personal opinion. And the various details of options, like delta, theta, iv, straddle premium etc. should come into picture only after we have proper view regarding the underlying, based on systematic method. Although my views could be completely wrong in this regards. Am I missing something.

I have got options EOD data available with me from past year and I would love to do some testing of the points that lemon bhai has mentioned. I am thinking of proper ways to do the testing, because it is not as simple as doing the testing on stocks, as options have got calls and puts and have multiple strikes, so studying them properly in a correlated manner, becomes quite complicated.

Thanks and regards

 

[lemondew]

Yes TO,

Guys do your own backtesting.

My observations please do your own testing
1. Select stocks (index) which has been fairly stable.
2. Stocks which are having NPA issues/JP associates/ Just dial typestocks and are 25-35% down/up down fit my method. They might just go anywhere.
Our stocks.

1. Stocks which are doing well priced in and are stable on charts last few days
2. Stocks which are having high premium relative to other such stocks and itself during this expiry

Short strategies work well here
This method has good win loss ratio. It has very poor return on Investment. For earning 5000 risking 5000-8500 we have to block 2 lac Rs. Thats the problem I am facing. I dont like naked selling.Hence I am also looking at some directional strategies which gives very high returns on one swing trade if you get it right.

I may also be guilty of looking at too many things . But thats fine I may again comeback on this one and try to figure some way to deal with this. Ultimately we want to reach one strategy which gives consistent and fairly good returns

Weekly options/ Not blocking entire margin for credit spreads from exchange will help us but for now we have to live with high margins.

Let us keep the observation part aside for time being.

Is there any reason to assume that Price trades in the range ( to the extent of combined premium of straddle )

I say this because it is very common we see many stocks move in one direction for a certain period.

I am not saying about the Infy example on its result day. That makes sense because Result day is an event and premiums are built for the next day news. But expiry is not an event related to price move.

lemon brother, thank you for sharing your insights with us.

Thanks for raising the important point mohan. I too have similar issues sometimes. I have noticed that a few friends who are Experts in options trading and know a great deal about various complex strategies and option greeks etc. start to focus more on those things only and the analysis of the underlying stock or future, becomes secondary to them. Whereas in realty, the major portion of the movement in any options, happens or is caused because of the big movements in the underlying. The kind of relative strength and trendiness etc. of the underlying are very important in my personal opinion. And the various details of options, like delta, theta, iv, straddle premium etc. should come into picture only after we have proper view regarding the underlying, based on systematic method. Although my views could be completely wrong in this regards. Am I missing something.

I have got options EOD data available with me from past year and I would love to do some testing of the points that lemon bhai has mentioned. I am thinking of proper ways to do the testing, because it is not as simple as doing the testing on stocks, as options have got calls and puts and have multiple strikes, so studying them properly in a correlated manner, becomes quite complicated.

Thanks and regards

 

[lemondew]

How common. Check stocks which have gone into an event with stable movement has high premiums associated with it.
Completely ignore volatile stocks. Also has relatively good days to expire. If you short 2 days prior to expiry if it jumps then you wont have much time left for stocks t o come back. Generally such stocks witness profit booking after good movement or buying after fall. So 15 days to expiry would be good

Also check how many have closed in range. But having said I found that the returns are not as amazing as directional trading

Let us keep the observation part aside for time being.

Is there any reason to assume that Price trades in the range ( to the extent of combined premium of straddle )

I say this because it is very common we see many stocks move in one direction for a certain period.

I am not saying about the Infy example on its result day. That makes sense because Result day is an event and premiums are built for the next day news. But expiry is not an event related to price move.

 

[TradeOptions]

Thanks for the updates lemondew. Its really good to know that you are trading options profitably on a consistent basis. After all, that is the final aim for all of us.

Wish you very best in trading.

Thanks and regards

 

[lemondew]

The returns werent great it is something which guys have earned thru mutual funds... Is more than FD but less . May be some tweaks i vent yet identified in this one. Someone else can go forward

Thanks for the updates lemondew. Its really good to know that you are trading options profitably on a consistent basis. After all, that is the final aim for all of us.

Wish you very best in trading.

Thanks and regards

 

[hardik229]

Hi Lemondew,

With this data what are we coming to? With this data what things we have to refer and what action need to be taken?

I am very new to options. Appreciate your response.

Thanks..!!
Hardik Shah

 

[heppagudi]

All future,options months may not list in the exchanges, and those listings of expiry month year changes month on month according to requirements of the exchange. The premium relationship of current month is dynamically changes to near far months according to requirements and trading behaviours. Premiums of fo are not static and there may be no standard procedure of the relationships among premiums of options future stocks, and majority of premiums are owned by the system and difficult to identify the share of premiums by different group members.