Ask Doubts on Option Greeks

pannet1

Well-Known Member
#21
assuming mundey is still banned. if you are buying an at the money option with a delta of 0.5 at 100 rupees and you expect the underlying to move 200 points in your favour within 1 week the price is cheap.

though you have a trend bias what if you. are wrong. so you become delta neutral by buying an option opposite to this at 100 rs.

now if the brakeven becomes twice . also the move need to soon other theta will hurt you and both
loose money. you will loose money even if It moves in either of the direction

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TradeOptions

Well-Known Member
#22
Mundey ji

how to choose strike price even if u know the trend, also i have heard many times that this premium is costly and that one is cheap, how one can know this

thanks

anil
anil ji, I am just sharing my views, they could be completely wrong. So please keep that in mind.

1. How to choose a Strike Price
I think it would depend on the kind of movement you expect the underlying would make in the time duration for which you want to trade it. Suppose DLF is at Rs 500 and based on your analysis, you expect DLF to move to 520 within next 5 days time. Then certainly, you would not like to buy the DLF Call of strike 530, as your underlying target itself is of 520 only. Depending on your Risk Appetite, you would choose any strike lesser then that.

2. For defining cheap vs costly, many guys consider IV Percentiles. Extremely high IV Percentile indicates Costly and Extremely Low IV Percentile indicates cheap. This is just one component, there could be other components for deciding this.

Thanks and regards
 

travi

Well-Known Member
#23
Mundey ji
how to choose strike price even if u know the trend, also i have heard many times that this premium is costly and that one is cheap, how one can know this
thanks
anil
If you know the trend
1. You can buy naked options :D

how to choose strike price even if u know the trend
2. If you are an option writer, you can SELL OTM against the trend.
Deeper OTM that's the safer probability you're betting on. (Your risk appetite)
3. You can BUY ATM, your trend reliability will get you into ITM.

premium is costly and that one is cheap
Theoretical price can be calculated from an option calculator.
Otherwise, Market is King, it decides the fair value :D

Remember, Except Delta (highest deep ITM and least deep OTM), the other Greeks, Gamma, Theta, Vega & Time Value are highest ATM.

Suggest you to use option strategies rather than naked positions.
 

bunti_k23

Well-Known Member
#24
:)Thankyou for opening this thread munde sir,following is my trading plan to trade options...

i have a intraday trading system which will be running on 3m TF on NIFTY FUT ,what iam going to do here is trading nifty options directionally when entry and exit signal appears on nifty fut charts..NOW. iam planning to sell 2 or 3 strike ITM options because i think it will follow nifty fut charts more similliarly as it will be having delta above 0.50(this phenomenon iam going to do a personal research live by comparing strike prices of nifty options with nifty fut).

So my question is how good this approach will be considering my trading system will be performing decent as iam having strict SL and target atleast 1:1.5

:)
 

travi

Well-Known Member
#25
:)Thankyou for opening this thread munde sir,following is my trading plan to trade options...

i have a intraday trading system which will be running on 3m TF on NIFTY FUT ,what iam going to do here is trading nifty options directionally when entry and exit signal appears on nifty fut charts..NOW. iam planning to sell 2 or 3 strike ITM options because i think it will follow nifty fut charts more similliarly as it will be having delta above 0.50(this phenomenon iam going to do a personal research live by comparing strike prices of nifty options with nifty fut).

So my question is how good this approach will be considering my trading system will be performing decent as iam having strict SL and target atleast 1:1.5

:)
On such short TF, there is no difference b/w buying or shorting options. Its like scalping. Diff is your margin requirement to write your 2-3 lots.
Since ur SL is in place, it doesn't make any difference as scalping any other instrument.
Except for the spikes, you are as likely to make money as to hit SL.
 

bunti_k23

Well-Known Member
#26
On such short TF, there is no difference b/w buying or shorting options. Its like scalping. Diff is your margin requirement to write your 2-3 lots.
Since ur SL is in place, it doesn't make any difference as scalping any other instrument.
Except for the spikes, you are as likely to make money as to hit SL.
Thank you for taking out ur precious time to reply bhai,"On such short TF, there is no difference b/w buying or shorting options".

is this statement valid for all of the days in a month...? i believe when time comes near to expiry price likely to fall more due to THETA giving a little advantage on shorting side, isnt it:)

anyways iam going to compare this stuff live and will be posting all things in a new thread.

Happy Weekend:)
 

travi

Well-Known Member
#27
Thank you for taking out ur precious time to reply bhai,"On such short TF, there is no difference b/w buying or shorting options".

is this statement valid for all of the days in a month...? i believe when time comes near to expiry price likely to fall more due to THETA giving a little advantage on shorting side, isnt it:)

anyways iam going to compare this stuff live and will be posting all things in a new thread.

Happy Weekend:)
You got the point, you're right.
All days won't be the same.
Again, the major Theta kicks in during the first minute of opening in contracting markets. After that, if you short and want to make considerable profit, you need to wait for half or full day. That's why I was specific to your 3m TF. You won't need 3m TF to gain from theta.
Again near expiry days, volatility tends to increase as everyone gears up so you need to decide whether you're scalping or not.
 
#28
Can a option LTP could be zero or the least is 5 paise.

I am assuming least LTP in NFO is 5 paisa as like in equity stocks and it would be the safest and have no loss.

I am buying 5 paise CE n PE options , let me know may they drop from 5 paise to 0???
 
#29
Hello Senior members ,

I have just started my research on options and my questions might be a bit basic .
So , given that we are options writer and have a put written at a certain level X , when the markets approach X the delta of the options increases to +0.5 .
Now in order to hedge it , we try to make it delta neutral either by :
1. Selling a few calls whose deltas add up to -0.5 or close to it
or
2. Buy puts such that it comes to become -0.5 in order to hedge it .

My questions is , despite bringing the deltas to 0 or close to 0 and the time to expiry being only 10-15days (effects of volatility wouldnt be much ) , would we still suffer a loss ? and if so , to what extent (other than the cost of hedging)

can seniors kindly throw some light on this question pls

Thanking ,
Jack of Trades
 

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