How to make money by writing CALL option just before exiry

abhinkoi · #21 18th July 2006, 10:33 PM

Thanks for your reply Agilent but I would love this to be explained with an example. This is my thinking that people can make huge money by selling one month later calls (In today's scenario selling AUGUST CALL).

For example :
Currently Nifty is at 2993 and we have 7 trading sessions left for expiry.
Right now July 3100 CALL is at 22.50 and AUGUST 3100 CALL is at 81.
I have observed that prices are high for one month later but as soon as it comes as current month they comes to normal. So I am guessing if market remains around 3000 so post expiry or in the beginning of AUGUST this 3100 CALL should be of around 30 (as a general price when strike price is 100 more than the CMP).

Please correct me if Im wrong...Can we make money with this stretegy...What are the loop holes involved? Am I thinking in the right direction or am i missing something?

Agilent · #22 19th July 2006, 08:59 AM

Quote:

Originally Posted by abhinkoi

Thanks for your reply Agilent but I would love this to be explained with an example. This is my thinking that people can make huge money by selling one month later calls (In today's scenario selling AUGUST)

Please correct me if Im wrong...Can we make money with this strategy...What are the loop holes involved? Am I thinking in the right direction or am i missing something?

Abhin
You are taking a view that Nifty will continue declining, or at worst, stay below 3100 till Aug end .

The downside is that if markets start rallying strongly any time until then (say if crude price cools down AND a few Q1 results turn out to be good).

See what happened mid Jun onwards (for what reasons can u recall ?) when sensex rallied by 2300 pts in around 3 weeks (Nifty by 500+ ?) http://finance.*****.com/q/bc?s=%5EB...off&z=l&q=b&c=

The risk u then run is to be forced to square off yr short of Rs 81 at a price which could well be 4 or 5 times higher, i.e Rs 400+. If you are then unlucky to be caught by an adverse bid/offer spread, then God help u .

So in my view yr strategy is high risk, low gain

What say ... Deriv experts ?

( And by the way, have u figured out the margin requirements ?)

AGILENT

vince · #23 19th July 2006, 09:50 AM

Quote:

Originally Posted by Agilent

Abhin
You are taking a view that Nifty will continue declining, or at worst, stay below 3100 till Aug end .

The downside is that if markets start rallying strongly any time until then (say if crude price cools down AND a few Q1 results turn out to be good).

See what happened mid Jun onwards (for what reasons can u recall ?) when sensex rallied by 2300 pts in around 3 weeks (Nifty by 500+ ?) http://finance.*****.com/q/bc?s=%5EB...off&z=l&q=b&c=

The risk u then run is to be forced to square off yr short of Rs 81 at a price which could well be 4 or 5 times higher, i.e Rs 400+. If you are then unlucky to be caught by an adverse bid/offer spread, then God help u .

So in my view yr strategy is high risk, low gain

What say ... Deriv experts ?

( And by the way, have u figured out the margin requirements ?)

AGILENT

My view on the above:

First strike against it : Option would be illiquid.

Second strike against it: Theta would be low since plenty of time left to expire.

Thirdly an assumption has been made that nifty would remain around 3000, what if it does not. Remedial measures should be thought of before any trade is taken. Square off under adverse conditions can be attempted only if the option is liquid.

Regds

abhinkoi · #24 19th July 2006, 11:47 AM

So can you guys recommend some safe and sound or say BEST PRACTICES to gain guaranteed profit (may be less with less risk) in Options?

Agilent · #25 19th July 2006, 12:17 PM

Quote:

Originally Posted by abhinkoi

So can you guys recommend some safe and sound or say BEST PRACTICES to gain guaranteed profit (may be less with less risk) in Options?

Excuse me ... there is no concept of g'teed profit.

I would sell some July Nifty 3200 options (@ around Rs 5) if I had enough idle cash to offer as margin

Dunno about the experts

AGILENT

vince · #26 19th July 2006, 01:22 PM

Lol ... I am with Agilent, no such thing as guaranteed. You win some you loose some.

Actually with the IV of puts temptingly high and the nifty attempting a titanic I am short some puts.

Dangerous , yes. But nothing that is not managable yet.

Agilent · #27 19th July 2006, 01:42 PM

Quote:

Originally Posted by vince

Lol ... I am with Agilent, no such thing as guaranteed. You win some you loose some.

Actually with the IV of puts temptingly high and the nifty attempting a titanic I am short some puts.

Dangerous , yes. But nothing that is not managable yet.

Lol from me this time...

I mean ... one man's meat is another's poison.

Here he is (Abhin), seeking the best strategy for shorting calls, and u recommend shorting puts. (Well u r the expert, so u know best)

One thing for sure ... all this 'living on the edge' really provides some excitement in our ( otherwise drab ?) lives , eh .. what say, guys ?

AGILENT

vince · #28 19th July 2006, 02:21 PM

Please Agilent , I am do not claim to be an expert and ,I am not recommending anything at all. I have just said that i am short some puts at the moment.

I suppose the best strategy is something that you are comfortable with and that would differ from person to person.

There is no living on the edge. All my trades are planned and executed as per.

abhinkoi · #29 19th July 2006, 02:34 PM

Thanks a ton both of you. I got the point. Agilent if you remember last month you shorted (even me too) and made some money 2-3 days before expiry.

I think this wud be the best strategy so far I can see....
Thanks again for all your help and guidance...

Will shoot my next query once it will hit my mind

abhinkoi · #30 19th July 2006, 02:38 PM

Quote:

Originally Posted by vince

Please Agilent , I am do not claim to be an expert and ,I am not recommending anything at all. I have just said that i am short some puts at the moment.

I suppose the best strategy is something that you are comfortable with and that would differ from person to person.

There is no living on the edge. All my trades are planned and executed as per.

Hello Vince,

Can you please let me know how this shorting Put strategy works. I am confortable with shorting CALL but not put.

Suppose if I sell 3100 PUT at 197 or 3000 PUT at 116. In which condition I would be in loss....I mean from which point (Close of NIfty at expiry) my loss will start...What will happen if NIfty closes below 3000...Please explain if you could with an example...

That will clear so many of my doubts...

Thanks in advance

Cheers
Abhi

Similar Threads for: How to make money by writing CALL option just before exiry
Thread	Thread Starter	Forum	Replies	Last Post
Make money by writing call & put options	TATrader	Options	53	31st August 2008 08:15 PM
enquiry regarding selling an option(writing the option).	sachin divase	Options	20	26th October 2007 11:50 PM
Want to make money	mysurrogate	Introductions	1	2nd September 2005 01:23 AM
Make Money This Way	varun	Equities	4	27th June 2005 06:57 PM
Must make money!	kaktose	Introductions	1	19th December 2004 12:24 PM