Two way option trade on volatile stokcs: good or bad

musicjunkie · #31 25th August 2007, 04:15 PM

One more question, sometimes when you are "in the money" can the option price still be stable , as in "no change". I have heard but am not sure if such a scenario can occur. Kindly shed some light on this please

Asia Etrader · #32 27th August 2007, 02:25 PM

Generally, the option will lose some time value. The closer to expiration the more time value that will be lost. Here is an option calculator http://www.asia-etrading.com/tools/o...calculator.php
Set the stock price above the strike price and play around with different days to expiration like 120 days vs 119 days and 4 days vs 3 days.

yoogi · #33 27th August 2007, 03:12 PM

Quote:

Originally Posted by yoogi

Looks like mine is not an intresting strategy for people to track. No problem. Confident from my paper trade I am moving to actual trade. Today nifty falling by 100+ points.

I bought 4100 put and 4100 call when nifty is at 4080.

Entry prices.
OPT-NIFTY-27-Sep-2007-4100-CE 164.
OPT-NIFTY-27-Sep-2007-4100-PE 220.

when nifty breaks out of 4050-4150 range, I might gain some profit. Sooner the better.

We'll see.

This strategy is working great for me in a volatile market. I depend on volatility to move the base price actually, rather than the perceived volatility to increase.

Also I realized few more points.

1. that I should pick call and puts at almost equal distances from actual price,

2. At almost equal prices

3. As distant as possible from base price. (so investment remains low).

In this trade, I made the wrong choice of picking call and put closer to base, thus paying a heavy price. Had it been 4000 put (which was not available) and 4200 call, it would have been the best possible trade.

I made profit with directional call (bullish), by exiting put on a day when market was down and holding on to call until today. Once base price reaches closes to its target on either side (put/call) it peaks.

When base crosses 4300, 4300-call was around 225. But when it crosses 4350, it wont be 255, but around 250, saving 5 points for risk. So when base reaches target option price peaks.

Today, I dont know which direction market will move next, (may be cautious optimism) I once again enter a option strangle.

OPT-NIFTY-27-Sep-2007-4400-CE for 79.75 and
OPT-NIFTY-27-Sep-2007-4200-PE for 117.

when NIFTY is 4303.

Given that I paid more for 4200-put, this is not the ideal trade. So I assume market has a downward bias. Once again I need substantial move on either side (more than 75 points) to break even within four days. If that doesnt happen, I need to exit trade.

THETRADER · #34 30th August 2007, 09:54 PM

Combining TA, I could give you an example where this would be great. The basic idea is breakout - The longer a stock stays in the trading range, more powerful the breakout move would be.

If an underlying is rangebound, or a converging triangle is even better. You buy both the Call & Put as close as possible near the apex for the triangle. Since it is impossible to say it will converge to the apex, you could buy them just at the point of breakout. At this time, since it is rangebound, the IV would be lower, and, options would be cheaper. Now, when the breakout happens, exit the opposite side option with minimal loss. With a breakout, IV goes up, your option moving in the direction of money, you tend to make more.
A word of caution : Option premium's time value keeps declining and moves to ZERO, yes, ZERO on expiry. So, entering this trade should be done with sufficient time for a breakout.

THETRADER · #35 30th August 2007, 10:04 PM

Quote:

Originally Posted by yoogi

This strategy is working great for me in a volatile market. I depend on volatility to move the base price actually, rather than the perceived volatility to increase.

Also I realized few more points.

1. that I should pick call and puts at almost equal distances from actual price,

2. At almost equal prices

3. As distant as possible from base price. (so investment remains low).

In this trade, I made the wrong choice of picking call and put closer to base, thus paying a heavy price. Had it been 4000 put (which was not available) and 4200 call, it would have been the best possible trade.

I made profit with directional call (bullish), by exiting put on a day when market was down and holding on to call until today. Once base price reaches closes to its target on either side (put/call) it peaks.

When base crosses 4300, 4300-call was around 225. But when it crosses 4350, it wont be 255, but around 250, saving 5 points for risk. So when base reaches target option price peaks.

Today, I dont know which direction market will move next, (may be cautious optimism) I once again enter a option strangle.

OPT-NIFTY-27-Sep-2007-4400-CE for 79.75 and
OPT-NIFTY-27-Sep-2007-4200-PE for 117.

when NIFTY is 4303.

Given that I paid more for 4200-put, this is not the ideal trade. So I assume market has a downward bias. Once again I need substantial move on either side (more than 75 points) to break even within four days. If that doesnt happen, I need to exit trade.

When Volatility is high, it is bound to come down, and, with it the option pricing. For your trade above, without the time value (that is on expiry), to be profitable
Nifty has to close above 4400+197(your premia paid)+the brokerage, ie about 4600 OR
Nifty has to close below 4200-197-brokerage, ie about 4000!

Similar Threads for: Two way option trade on volatile stokcs: good or bad
Thread	Thread Starter	Forum	Replies	Last Post
enquiry regarding selling an option(writing the option).	sachin divase	Options	20	26th October 2007 11:50 PM
Invest your money in Pharmaceutical Industry – Best option for good returns.	Bullet	Equities	5	31st December 2006 07:14 PM
Mkt volatile, Sensex up 17 pts	Robbie	Current Affairs	0	7th December 2006 05:10 PM
Most Volatile	SunilM	Equities	5	9th September 2005 04:32 PM