Covered call option - Pls help

S

saurabhjain2005

Member
#1
#1
Hi All,

I just thought of option selling strategy but cudnt find about it on internet so writing here to ask all the intelligent community members.

Suppose Nifty is trading at 5300 and I sell a Nifty call strike 5400 for Rs 100 and hold the position.

Scenario 1: If nifty goes down I will be making profits so I can book any time.

Scenario 2: If nifty start going upwards, I ll start making loss as call value will go up. So, what I ll do is, I ll buy Nifty future at 5500 so I ll cover any loss on expiry, else I ll not press the panic button and hope for my option price to come down.

Now I just wanna ask if this is correct logic or I am missing to see something here... Is it a no loss strategy or there are loop holes in it??

Any suggestions would be appreciated and will definitely be thanked by me ;-)
 
C

comm4300

Well-Known Member
#2
#2
saurabhjain2005 said:
Scenario 2: If nifty start going upwards, I ll start making loss as call value will go up. So, what I ll do is, I ll buy Nifty future at 5500 so I ll cover any loss on expiry, else I ll not press the panic button and hope for my option price to come down.
Click to expand...
Few what-ifs that you need to consider:

# Premium on futures. Nifty spot could be a 5500 and futures at 5550.
# Nifty turns down right after touching 5500. You'll be incurring loss on futures.
# there is gap up on nifty [5%-10%] due to some positive news.

Naked option writing is not advisable.

let's see what Dan, AW10, Columbus, n others have to say on this.
 
S

saurabhjain2005

Member
#3
#3
comm4300 said:
Few what-ifs that you need to consider:

# Premium on futures. Nifty spot could be a 5500 and futures at 5550.
# Nifty turns down right after touching 5500. You'll be incurring loss on futures.
# there is gap up on nifty [5%-10%] due to some positive news.

Naked option writing is not advisable.

let's see what Dan, AW10, Columbus, n others have to say on this.
Click to expand...
Ok, thanks for the reply, but what I meant to say is that I will keep a track of Nifty future price. Suppose I have sold Nifty 5400 call for 100 , then I would not incur loss till 5500, so I'll buy nifty future when it is trading at 5500.
 
P

psvaja

Active Member
#4
#4
After touching 5500, you will buy NF @ 5500, than if nifty goes down than, you are safe till 5400 only. Below 5400, there will be unlimitid losses.
 
T

TheDreamer

Well-Known Member
#5
#5
saurabhjain2005 said:
Hi All,

I just thought of option selling strategy but cudnt find about it on internet so writing here to ask all the intelligent community members.

Suppose Nifty is trading at 5300 and I sell a Nifty call strike 5400 for Rs 100 and hold the position.

Scenario 1: If nifty goes down I will be making profits so I can book any time.

Scenario 2: If nifty start going upwards, I ll start making loss as call value will go up. So, what I ll do is, I ll buy Nifty future at 5500 so I ll cover any loss on expiry, else I ll not press the panic button and hope for my option price to come down.

Now I just wanna ask if this is correct logic or I am missing to see something here... Is it a no loss strategy or there are loop holes in it??

Any suggestions would be appreciated and will definitely be thanked by me ;-)
Click to expand...

1) Never keep naked short option positions overnight if you have not got sufficient capital to recover some drastic moves...

2) Why would you wait till 5500 to add the long in futures? Won't your analysis give the buy signal much before that? By the time Nifty futures reach 5500, the option will be trading at 160-170...

3) Why would you add a futures position and not an option of lower strike?

4) What if nifty goes below 5400 after you have added your nifty futures?

Some more what-if can be added to make this thing more complex. But the questions asked are the simplest to comprehend and you must have back-up plans to handle various situations.

Plan the Trade and Trade the Plan. :)
 
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