OTM Option writing

Hi

If I "write / sell" OTM (or maybe deep OTM options) in mid month and then allow the options to expire ....... (ie buy price becomes "0") .... Then will i be able to pocket the entire premium received ...

Yes ... I understand that risks involved with options writing .....that if my OTM becomes ITM then i may bleed heavily .....

But assuming OTM options that I have written is expired, then will i be in slight profit?

Please advice

You are right in your view, but is it worth for a small retail trader to take such a trade, after paying hefty margin money and risk involved with option writing.

More safe is this :

say we are at 8400

sell 8600 CE & 8200 PE
also to protect this
buy 8800 CE & 8000 PE

Margin will be more as 4 legs are there

but if started early at the series one can get a wide area like 8600 to 8200 (when at 8400 at starting) to keep the premiums earned, further if these boundaries gets breached the other two leg can manage the damage.
Safe relatively ... selling and keeping the premium is sure way to beat time decay.

Muchas Gracias

Even if entered into this trade, margin requirement is 28k approx.

Premium recev (8600CE + 8200PE) - (8800CE+8000PE)
(75 +12)- (15+6) ie Rs.66 * 25 = Rs.1650 /-

approx littel less than 6% ROI

good:clapping:

Can the above strategy applied even when I am unsure about how nifty will be at expiry (bullish / bearish or sideways) ??

Another imp questions .... all the options that i have entered into, should it be square off or allowed to expire?

another question ...

above startegy is it advisable entered at month start or near expiry??

@Emoheal

The option strategy which is talked about is called: "Iron Condor". So you may read in those links to find a few answers to any basic questions you may have about how and when to trade them:

How to Trade Option Iron Condors: http://www.learningmarkets.com/how-to-trade-option-iron-condors/

Iron Condors: https://discoveroptions.com/mixed/content/education/articles/condors.html?useHistory=1

All the best and take care / Dan

Any time , as you are expecting NF remain within the perimeters.
Selling options require margin near a lot of future ( check Zerodha website, a easy reckoner is there), credit earned will take care other two legs debits.

Okey Dan has explained ....

In simple terms , if u wish to earn more on eating premiums(sell of call/put) u shud take a position towards the start of series(take a shot when vix is on high side) thus helping u on time decay + fall on vix. volatility is killer in such cases.


if u wish to earn more on buying of call/put start of the series is best bet as it gives u enuf time to exit in profit or exit in Break even.

In such case take a shot only when u expect high volatility and vix is low + low volatility(at the time of trade)....helps in 2 ways low volatility means low premium to buy,low vix and high volatility expectation means means when market moves in your favor premiums would increase + at start of series it increases more as it has more time value.


hope that helps
happy trading

One strategy for Expiry Week :

Expiry Week Monday :

1) Choose OTM strike of both CE & PEs where OI is maximum (Option chain NSE)
2) If Nifty > vwap @ 10 am short that highest PE
3) If Nifty < Vwap @ 10 am Short that highest CE

can do both also,

SL: entry price violation

wait till expiry or square @3.25 pm and do it again on Tuesday and so on ... till expiry.