[quote uid=213087 name="kingkrunal" post=1333648]thanks for sharing this.. and was trying to get this straight with a small example :
TATA motors: CMP:171.40 - Jan expiry
1- buy 170 ce- 9.8 and sell 175 ce - 7.45
2 - sell 2 lots of 185ce at 4..05
credit 7.45+4.05+4.05-9.8 = 5.75
scenarios:
1 - price between 175 to 185 do nothing
2- price below 175 or 170 - do nothing
3- if price increases above 185 by 1-2%.. lets say at 187 .. close the 185 ce sold and sell 4 lots of 190 call
4 -repeat step 3 if it increase more
Am i correct in above example ? or something i missed ?
thanks[/QUOTE]
Code:
Scenario number 1
1 - price between 175 to 185 do nothing.
The action you are taking if market reaches 185 is very late. You should shift to 190 at around 182. Shifting that late can result in more loss booking in 185ce because as an option reaches near ATM it's delta increases more rapidly.
A lot of people write options with a view or scenario to expire there position. It is also important to be in profit or neutral to reach till expiry.
I tried explaining this in the other thread as well.