will straddle of nifty option in budget period be suitable?

amh · #11 5th March 2005, 03:28 PM

In trading for unsual moves in Nitfty, I would like to draw the attention of our forum members that nifty options are of european types i.e.we cannot exercise it in the middle of the month as in case of stock options which are of american types.
Those members who were there in the market at the time of 17th May massacre would remember that when market started falling, trading in options got dried up.Those who had bought put options in stocks,exercised there options at the closing prices and booked the profits but nifty put buyers had to wait till the market recovered from the the lows and stabilised.
Last but not least, one must consider the brokerage part with service tax and STT while taking positions in options specially Butterfly i.e.buying at the money call and put and selling out of money call and put.

Zeyphr · #12 6th March 2005, 01:51 PM

the straddle works great for movement in either direction..but assuming that the IV's dont fall , a 2050 Nifty March straddle was trading at nearly Rs 130 near bout 21st of Feb, after the IV's fell it was last trading at Rs 118.05 recoveering from a low of nearly Rs 95 in the mid week.
infact immediately the day after budget the IV's started falling and the straddle was losing money even though the index was climbing

Traderji · #13 6th March 2005, 03:01 PM

The price of an option are based on a number of inputs, including the current price of the underlying asset, the strike price of the option, the time remaining until expiration, and volatility.

Intrinsic value and time value are two of the primary ingredients that go into an option's price.

Intrinsic value is the extent to which the strike price of an option is in-the-money.

Time value, occasionally known as extrinsic value, is defined as the amount by which an option's price exceeds its intrinsic value; time value declines over time — it is less and less relevant as expiration approaches. In fact, upon expiration, an option can be worth only its intrinsic value.

The deeper an option is in-the-money, the more intrinsic value (and less time value) it has. This is when you can expect the option to move more like the underlying stock it's representing.

Call Options
Intrinsic value = Underlying Stock's Current Price - Call Strike Price
Time Value = Call Premium - Intrinsic Value

Put Options
Intrinsic value = Put Strike Price - Underlying Stock's Current Price
Time Value = Put Premium - Intrinsic Value

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