Is This Option Sellers' Market ?

Although I m not new in Traderji and markets, I find myself novice in my understanding of markets, so I ll start with a question, then my observation (and forum participants guidance on the same) that "options are for sellers", and then i will show u ll a strategy for easy, definite, and risk free money.

I ve for the first time sold options, nifty ce 6250 jan prm 68 and nifty pe 6150 jan prm 71, margin to jo laga wo laga, they ve deducted 6873 as options mtom loss, when nifty spot closed at 6174 and fut at 6197, my ce closed at 65 and my put closed at 71.55.
my ques to u all is how do they calculate mtom p/l for option sellers, does it vary from broker to broker?
My RM started telling me that u sud not sell options its very risky and all that, but didnt had answer to my question.

coming to my second point, i observe that mostly option premiums are not for buyers, as my RM was telling me to buy the same thing I ve sold,
If i wud had put long strangle :
I wud hav started getting profit only abv 6250+139= 6389 and 6150- 139= 6011, but now I ll get something if nifty remains within 6389 and 6011.

so i observe that they hav defamed short strangle etc as Limited Profit Unlimed Loss, which is true, to fear away newcommers from shorting.

pl. all experienced ones !! throw light of Knowledge !!

I will share my idea of making short strangle risk free in my next post.

Thanks all for taking pain in reading my post, and thnx in anticipation for further guiding me.

To make the short strangle risk-free,

To this short strange, i wud like to add a position in nifty futures,
the method will be as follows:

My max profit range is 6250 to 6150.
If nifty crosses 6250 on upside i will make a long nifty fut,
If it crosses 6150 on downside i will short nifty fut,
I will not have any position in between these points.

I assume two problems:
one, if Nifty gaps up/down these levels,
two, if Nifty gaps up/down these levels, i take respective position, and nifty suddenly reverses.

seniors guide me further !!!

Deepak, you are right markets are for options sellers and not for options buyers especially for people who trade only in Options.

Generally very large hedge funds which have crores of shares in market generally hedge their positions by buying more number of puts.

For spectulators and traders in options its not advisable to buy options unless they are very sure for the market direction. Moreover you have to work on AT the Money puts and calls strikes if you are any option buyer.

And here profit loss is almost 1:1. Means if you can double your 50000 to 100000 in 1 week time then you can lose also at same pace in 1 week time.

Hope this will works for you.

Regarding MOM losses you need to worry, you have to maintain additional margin of range 30~40k when you do options selling.

Finding ankurpcl and DanPickUp on my thread is really exciting for me.

DanPickUp is right, there cannot be sellers when there are no buyers, but there is something i ve heard called "marketmakers". Forum people who know sud pl. elaborate. I will research and write.

ankurpcl have said practical and reasonable facts:
"its not advisable to buy options unless they are very sure for the market direction".

most of us, novice ones, including our RMs (brokers/sub brokers) , they dont know enough about shorting options and the benefit therein and only fear about the unlimited loss that it will incur,
i overcame the fear factor just a few days back, and now feel that taking positions in future is risking more unlimited loss than shorting options. forum people wat do u say ?

As far as mtom losses, i ve understood that when we sell options, they credit the ( premiun X lot size ) amount in our ledger/account, but they dont want us to use that amount as margin for funding other positions , so they deduct the market value of our sold option at eod from margin and this in my margin was shown as mtom loss.

regarding my position :

6250 ce is at 103.55
6150 pe is at 30.45
getting 5 points

and since market broke up 6250 (i saw a flag in 15 min chart, and it was holding) , so i bought nifty future at 6249 which is now at 6300.

@Niludeepak

The post from Ankurpcl has very good aspects I really appreciate. Even then I still wrote: Wrong. Why did I do that?

For me the post still gave too much the impression that selling is the only option for options traders. If you sell options, any options market maker has to buy or who ever it is on the other side. An option market maker will not keep the bought or sold contracts/options like most Joe Average option trader do. He will in the shortest possible time hedge his position and give away his risk to the next one. He will go home at evening, will have made his money with the volume he handles through the bid ask spread when hedging and enjoy his evening. Most Joe Average options trader on the other hands sit on there short position and hopes that markets will go down as quick as possible when sold calls and vice versa when sitting on naked short puts, which means market should then hopefully get quickly up.

Definitions for options sellers we have to understand when talking about them or option selling:

Group A are options sellers which want to play the time decay factor. They will play in most cases both side of the market = Short calls and short puts with short option strategies implemented at once under there conditions.

Group B on the other hand are options sellers which do speculate on the direction of the market when selling puts or calls. They will not go much for time decay, instead they want the quick profit through a falling/rising market when sold calls/puts. Also those players have there own rules to trade in that way.

Group C are the very advanced options sellers which use a mix of A and B and trade different strategies through leg in, even mixing up there strategies with different derivatives.

So it makes always sense to be sure to what group we do or want to belong.

Question one: If I know market will fall, why shouldn't I buy puts and limit my risk through that to the money I spent to buy this put? Question two: Why should I block huge amounts of money for the margins brokers ask in India for such short? There are many more questions I easily could post. So here the discussion can go on and on, as there are so many arguments for either side of that kind of trading. But one thing is still very clear: There is not only one way and to end that subject, that is why I wrote my comment the way I did in the last post. I do not advocate for either side as the only one.

Take care and all the best / DanPickUp

Did you ask your broker if selling options is riskier than going naked long or short in futures ?

Danpickup and ankurpcl has added value to this thread. they have shared interesting facts, i thank them for the same.

my observation is that, regarding nifty, premiums are such that normally its beneficial to short than to go long.

if i say, i want to go for directionless hedged position,
when market will either be rangebound or volatile :
the 2 simple strategies will be either short strangle or long strangle respectively,

mostly the premium is so heavy that, breakeven and then profit point for long strangle looks very distant for positions to be profitable,

and thus the profitable range for short strangle is quiet wide and inviting

and the return looks like almost atleast 2-3% to may be 10% per month.

as seen in my position

Regarding my position,
i squarred off my short ce 6250 (made at 68) at 115 - loss of 115-68=47 points
and made new short ce 6400 at 38 premium
and squarred off my nifty fut long (made at 6249) at 6326 - profit of 6326-6249= 77 points as nifty started falling yesterday.
i shorted nifty fut today at 6290 and covered the same short at 6273 when nifty recovered a lot from lows at near eod and i didnt want to carry this position over weekend- profit of 17 points.

my expectation is (71 +38 = 109 points )
my pe6150 will expire worthless - profit of 71 points.
my ce6400 will expire worthless- profit of 38 points.

i have made ( 77 + 17 - 47 = 47 points )

if my expectation comes out to be true i will get about 150 points,( if i dont take any new trade in nifty fut) with investment of about 85000, its 8.5% in one month

my mistake/majboori :
i wanted to shift my short ce 6250 to either shrt ce 6350 or ce 6400, market had started falling and i had to sell ce at maximum premium and so did a wrong thing of squarring off my short ce6250 yesterday, which i wud have waited till todays fall and saved my 47 points loss or have gained 7-9 points , only if i had some money to margin-fund my short 6400 ce done yesterday.

Here's article on market makers :

Who Are Market Makers?

Many option traders and stock traders ask, who is buying from me when I am selling and who is selling to me when I am buying? What happens when nobody wants to buy a stock or stock option which I am selling? In a normal, liquid market, there are usually someone queuing to sell a stock or stock option when you are buying and someone queuing to buy when you are selling. However, there are times when nobody is queuing to sell when you are buyng and times when nobody is queuing to buy when you are selling, so, how is it that you are still able to buy or sell your stocks or stock options smoothly? This is where Market Makers come in.

A "Market Maker" can be an individual or representatives of a firm whose function is to aid in the making of a market in an options exchange, by making bids and offers for his account in the absence of public buy or sell orders in order to ensure market transactions are as smooth and continuous as possible. When an option trader places an order to buy a stock option which nobody is queuing to sell, market makers sell that stock option to that option trader from their own portfolio or reserve of that particular stock option. When an option trader places an order to sell a stock option which nobody is queuing to buy, market makers buy that stock option from that option trader and adds it to their own portfolio and reserve. In doing so, market orders are continuously moving, eradicating sudden surges and ditches due to buying and selling imbalance.

courtesy : http://www.optiontradingpedia.com/market_makers.htm
(i dont know whether i hav violated copyright)

We do not have official market makers of options in India, at least that I know of. Market makers of options are required to offer two way (buy/sell) quotes for all the strikes, all the time, who provide liquidity in options.
Option sellers have an advantage of time decay working to their advantage, and to the disadvantage of buyers! Of course, profit of option sellers are limited to the premium and unlimited loss, vice versa for buyers!