Option selling

I started this thread to learn these things. Everything was quoted by me are just general saying. Please guide if you have knowledge on option selling.

Borrowed knowledge does not work with the option selling

It require absolute clarity of WHAT AND WHY you are doing something.

Borrowed knowledge can give you profit in short run but not CLARITY OF PURPOSE that is the soul of option trading, and eventually you may run into losses.

Try some good book about options, at least you can start with NSE's Option Module.

For better understanding discuss about specific points.

No Trade till now. Lets try tomorrow.

You remember the first rule which you were a little bit aware of?
Therefore, Why don't you just sell options for Dec Expiry?

Sold Dec 7900 pe - 106 and Dec 8200ce - 90 (Paper Trade only)
Total credit 196. Stoploss = Nifty Future above 8130 or below 7920
Means if NF trade above 8130 then will exit ce short and if below 7920 then exit pe short.

When you are selling unhedged options, be prepared for any unexpected gaps

As you said to exit PE at NF below 7920

If one day NF closes at 7960-80 and very next day it gaps down 200/300 points, how would you manage your risk?

It may not happen with your first trade immediately, but one day it is bound to happen, and then it may erase all your profit and capital both

Consider a risk management system, where you remain protected in any kind of gap up or down

Traddatrend
Please suggest how to manage that's risk

Now stop loss is 7940 on lower side and 8060 on upper side on EOD basis Nifty future

First of all prepare your mind, what is the maximum loss you can afford.

For your example, you have earned the premium of 196 points

Thus you are safe uptill 8400 on upside and 7700 downside on expiry basis (lets keep it in round numbers, 10-5 points plus or minus is ok)

So makeup your mind how much loss you can afford above 8400 or below 7700, and buy CE + PE of that much distance

Say if you think you can afford the loss of 200 pints, then buy a CE of 8600 and PE of 7500

Or if you think you can afford the loss of 100 pints, then buy a CE of 8500 and PE of 7600

You can adjust this distance as per your risk appetite. It will surely reduce your profit, but will keep you safe even in worst kind of gap up or gap down whipsaw movements

Mutli leg strategies will be safer than straddles/strangles but you require higher margins and the profit will be reduced.
Even then, nothing is immune to black swan events, that's when option writers are hit the hardest.