Make money by writing call & put options

vangara_kris · #41 24th August 2008, 10:10 PM

In my opinion writing calls is much safer than puts. Specially considering present economic situation it is much better. Consider this-
current mkt is @ 4327 a 8 - 10% increase (ie 4670 - 4760) will make mkt in over bought zone and writing 4700 or 4800 call with cash in hand to take position in future, if requires is a safe trade. I do trades considering normal situations. Some unusual things like jan crash may happen but not every time. Hedging a position from initiation of trade will though protect us from unusual times but hamper profits every time. One may back test my trade style and publish the results too.
Krishna

krishna23 · #42 25th August 2008, 08:42 AM

Quote:

Originally Posted by pasha

If the underlying makes a sudden big move the far option is a very small hedge and the position could lose money. Credit spreads are the better choice.

i agree market shd be sideways and the underlying asset shd stay in a range of the shorter term option...the idea is to benefit frm the shorter term volatility skew...

the great thing abt these things is that they give u the flexibility to choose ur own strategy whether it is a delta neutral one,a horizontal or vertical spread depends upon where u believe the market is heading...how much margins u can pay up etc...

alex_laxya · #43 29th August 2008, 12:30 PM

Does any one consider calender spread?its very interesting market neutral strategy.infamous for using by mutual funds to generate money.but good one right now i have some open positions.i will post here and on my thread also when i get free.by now smart googlers can find it. We will try to add it with real example.lets see i found details of my last calendar spread trade. Keep going this kind of thread is very help full..option buying is suckers game n options writing is pros game...(not always sometimes option buyers are smarter but odds are less)http://www.traderji.com/technical-an...-analysis.html

alex_laxya · #44 29th August 2008, 12:32 PM

Pleas members gather here all information possible on various market neutral option methods ..of course if thread starter has no problems

jnj333 · #45 29th August 2008, 01:32 PM

one of the Best Neutral or rather arbitrage strategy is If Call is more costly than Put and it is more than 1.5% Expensive. For example if stock is at 45, The 45 call is at 3.50 and 45 put is at 2.80, if one does the following-

Buy Stock, Sell Call , Buy Put, in the above case there will be a profit of Re.70 which is about 1.5% no matter where the stock ends at expiry ,be it 20 or 60 or anything else. Big Funds are always lookout for these type of opportunity which is about 18% profit annualised and is as safe as a FD.

alex_laxya · #46 29th August 2008, 04:48 PM

Quote:

Originally Posted by jnj333

one of the best neutral or rather arbitrage strategy is if call is more costly than put and it is more than 1.5% expensive. For example if stock is at 45, the 45 call is at 3.50 and 45 put is at 2.80, if one does the following-

buy stock, sell call , buy put, in the above case there will be a profit of re.70 which is about 1.5% no matter where the stock ends at expiry ,be it 20 or 60 or anything else. Big funds are always lookout for these type of opportunity which is about 18% profit annualised and is as safe as a fd.

thanks,nice information... In reality the brokerage will kill our profit,funds can do ,cuz they trade on small brokerages.once i promised my broker i will trade 10 times more if u allow me less brokerage.when i traded in calender spread our profits were mostly eaten by brokerages.but my broker(s)didnt agree as it was less possible brokerage for non institute players.plus no any client will come to you if i am promising them 15% odd returns annually but surely.crowd always want more returns without any assurance. Haaha.... Irony of the matter is now few people again showing interest in those neutral strategy's as it was a bull market and now they cant earn money.might be brokerage will also cut .time changed in 180 degree

ARMHM · #47 29th August 2008, 05:01 PM

Index options are ok since they cannot be exercised before expiry. But writing stock options is a little risky business unless you hold a hedged positon. Sometimes deep in the money options are exercised and you wont find any buyer for fresh at the money option.

jnj333 · #48 29th August 2008, 07:12 PM

Quote:

Originally Posted by alex_laxya

thanks,nice information... In reality the brokerage will kill our profit,funds can do ,cuz they trade on small brokerages.once i promised my broker i will trade 10 times more if u allow me less brokerage.when i traded in calender spread our profits were mostly eaten by brokerages.but my broker(s)didnt agree as it was less possible brokerage for non institute players.plus no any client will come to you if i am promising them 15% odd returns annually but surely.crowd always want more returns without any assurance. Haaha.... Irony of the matter is now few people again showing interest in those neutral strategy's as it was a bull market and now they cant earn money.might be brokerage will also cut .time changed in 180 degree

Arbitrage strategy are mainly used by million dollar funds (which may not necessarily be equity based) who are mainly debt based and do not want their millions here today gone tomorrow, their investors are also super conservative type so if they are able to make 18% annualized they are more than happy,just remember Warren Buffet have made a little over 20% annualized to become the Richest Man of the Planet, just the power of Compounding.

Generally the strategy mentioned by me is for conservative investors who keep their money in a Bank Fixed Deposit.

Will try to find and post more aggressive but somewhat neutral strategies .

alex_laxya · #49 30th August 2008, 02:38 AM

CALANDAR SPREAD
when there is one week for settlement,sell/write current series nifty call or put( ex.4300 call sell @ strike 50rs),and at the same time buy nifty call option (ex.4300 call buy@strike 200rs).now at the expiry day on closing suppose market close on nifty4300.ur call of this month expire worth less(call 4300@50...profit 50rs/trade) and ur next months call will be 170rs and u sell that call.now( loss 200-170=30rs) u have squared off both positions.net profit 50rs-30rs=20rs.
Now i gave just hypothetical example.theory behind this is,in last week of series,premium of current series option usually go down by avg.5% and premium of next series option goes down by average 2.5%,......google for premium curve on option...regards alex

jnj333 · #50 30th August 2008, 11:51 AM

Quote:

Originally Posted by alex_laxya

CALANDAR SPREAD
when there is one week for settlement,sell/write current series nifty call or put( ex.4300 call sell @ strike 50rs),and at the same time buy nifty call option (ex.4300 call buy@strike 200rs).now at the expiry day on closing suppose market close on nifty4300.ur call of this month expire worth less(call 4300@50...profit 50rs/trade) and ur next months call will be 170rs and u sell that call.now( loss 200-170=30rs) u have squared off both positions.net profit 50rs-30rs=20rs.
Now i gave just hypothetical example.theory behind this is,in last week of series,premium of current series option usually go down by avg.5% and premium of next series option goes down by average 2.5%,......google for premium curve on option...regards alex

This would benefit if Nifty is almost rangebound but if nifty falls to say 4100 than 4300 call will expire almost worthless giving a loss of about 200 - 50 (earned from selling current month nifty) = Rs-150 loss. Nevertheless this strategy could prove fruitful if Nifty remains in a tight range.

One more strategy could be to sell out of money puts and calls say if we want to play safe and believe nifty will remain between 3900 and 4700 or a much safer side when nifty is at 4300 ,we are taking almost 10% move on either side, though we may not earn much premium but we could be on a safer side, We sell Nifty 3900 put and Nifty 4700 call. Movement beyond both these figures will result in a loss.

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alex_laxya (29th August 2008)