Picking up nickels in front of steamroller!!

For quite some I have been reading through entire forum to see if any one is in pure Option Selling based trading. I did not find any as mostly writing option is considered risky.

However I have been trying to trade in pure writing. I have lost few thousands in intraday delivery based trade, then earned few thousands in future trading but again lost in future trading.

My difficulty that I do not get much time during trading hours and therefore I was looking some method for trade suitable to me.

I have felt that option selling would be good enough for me. Overall dividend yield on my investment is around 1-1.5% , therefore it would be good if I get paid dividend every month. Therefore on profit objective, I have set modest target of 12% annual profit on my total capital invested in long term stocks, which are sitting ideal.

As the stocks provide more than sufficient margin I am able to sell quite distant OTM strikes.

Presently I am having following positions open, all of 31-Dec.

TATASTEEL CALL 640 @ Rs.5.70
TATASTEEL PUT 470 @ Rs.3.00

SUZLON PUT 60 @ Rs. 00.75
SUZLON PUT 65 @ Rs. 00.90

NIFTY CALL 5400 @ Rs.22-50
NIFTY PUT 4700 @ Rs.22-00

I have collected premium around Rs.13,500+ for this month, I am now trying to preserve it.

I am sharing this so I will have to admit if I make mistakes and able work upon it from discussions and suggestions from seniors.

In addition to above positions, Sold following options.

NIFTY CALL 5300 @ Rs.36-00
NIFTY PUT 4800 @ Rs.31-00

TATASTEEL CALL 640 @ Rs.5.70
TATASTEEL PUT 470 @ Rs.3.00

SUZLON PUT 60 @ Rs. 00.75
SUZLON PUT 65 @ Rs. 00.90

NIFTY CALL 5400 @ Rs.22-50
NIFTY PUT 4700 @ Rs.22-00

NIFTY CALL 5300 @ Rs.36-00
NIFTY PUT 4800 @ Rs.31-00

Out of all abovesaid options I have sold for 31-Dec, seem falling in place (except TATASTEEL call 640, premium of which is at around 3.00) on account of low volatility in the over all market.

If TATASTEEL 640 call is cleared, I will be able to keep all the premium, around 16000-00 , collected by selling these options.

I am planning for writing options for next month and DLF seems good candidate , as it appears range bound between Rs.350-400.

January'10 options are not sufficiently liquid , but still liquid enough to enter a trade on both side.

I plant to sell 410 CALL around Rs.8-00 (bid-ask price is 5.50-9.00), which is about 10% higher then the spot price of 370 and above resistance of 400. Which would generate around Rs. 6,000-00.

At the same time I plan to sell 340 PUT around 7 (ask-bid price is 6.60-9.00) which is a step below the support of Rs. 350-00. Which would generate around Rs.5,500-00.

As to risk management method, I use premium collected from one side to use as buffer for other side , when the stock and premium starts moving other side. Suppose if I am able to collect Rs.15-00 as total premium from both the sides, and if the premium of any one option reaches to Rs.15-00 I would square off that option.

Your suggestions and inputs are welcome!!

Do u leg into the strangles mate or all at one go??

Dlf should sprint once above 400.. my opinion.

Do look at the IV's too.

Thanks for your view and suggestion.

Yes I plan to execute both the options on same day. I am trying non-directional trade with DLF.

Suppose if I sell 410 call @ 8 first and DLF quickly moves up, and so does the premium, then in such case as per my risk management method, I am left without any buffer. Possibly I would have to sell a higher put then 340 ,in hurry, to get the similar premium, and making me vulnerable to possible down side movement in the stock.

Perhaps with Tata Motors, I plan to sell call first.

Purely hypothetical, assuming the call gets in the money how do u plan to manage the trade?

Thanks for your interest.

I would not wait till the option get in the money, because I am metering my risk on the basis of the prevailing premium of that option. Suppose I let the option goes in the money, or near to it, (if that happens too quickly) then the premium would increase about two-three folds.

This is one reason I mostly try to sell options of both side. My total collected premium equals to my loss bearing capacity. I try not to lose a rupee from my capital.

Moreover, I do not intend to employ any method like buying future or extending trade by selling another higher/lower call/put option.

According to your earlier post u would square off the loosing option once the premium reaches your total premium collected. That leaves u with a naked short option position with no buffer now since the collected premium is lost already.
What if the market turns against u now ??? Where do u get out of the remaining position? Just trying to understand the risk reward of the strategy.

Thanks for your patience.