A Beginner's way to trade options.

[Smart_trade]

no DA, you got me wrong here ..

what i mean is when 60 min flow signal long we will sell ATM PUT

& when flow signal short we will sell ATM CALL..

its only single position..

regards

vineet

You can do that vineet,but we trade 60 min method not for 50-100 points but 200-300 points. In case you get a buy signal and sell ATM put,your profit will be restricted to the premium received. So if premium received is 130 rupees,your profit will be only 130 rupees even if market moves 400 points in your direction....

In case the market tanks and some overnight bad situation,you are taking unlimited risk by selling the put.

Instead of that if you buy a call your profits could be unlimited,but max risk limited to the premium paid. So in crash situation also you dont get hurt badly.

ST

 

[AW10]

Being an Option trader, I cant hold myself back from joining the hot discussion on options trading. Thanks a lot ST Da for sharing your knowledge and experience here and jamit for providing the discussion platform by opening this thread. Looking forward to gain/share from this thread.

Happy Trading.

 

[Smart_trade]

I have done following options trades today :

1) Bought 3400 Nifty May call between 202 and 207 and sold the same between 214-217

2) Bought 3500 put @ 176 and simultaneously sold 3400 put at 131.50

Will explain the reasons EOD.

ST

The first trade was a scalp trade.....mkt was going up so I bought Nifty 3400 May calls with average rate of 204 and sold the same with 215-216 average price.

My favourite is selling a straddle but did not do that trade as long weekend,elections may give rise to large swings.....it is an ideal strategy for steady markets for pocketing the time decay.

2nd trade is a vertical spread where I have bought Nifty May 3500 puts and sold 3400 puts of the same month. With election and market having resistance at 3500 I wanted to buy 3500 put when the market is going up and nearing 3500 so my premium paid is less. I am expecting sub 3400 in nifty in 7-10 days and that time I intend to close this trade.

I have sold 3400 put to reduce the net cost of my spread position. In case my mkt reading is wrong and mkt keeps going up,my max loss will be Rs 44.50 as both puts will expire worthless. My max reward will be Rs 55.50 if both options get in the money by expiration.

ST

 

[Smart_trade]

Being an Option trader, I can’t hold myself back from joining the hot discussion on options trading. Thanks a lot ST Da for sharing your knowledge and experience here and jamit for providing the discussion platform by opening this thread. Looking forward to gain/share from this thread.

Happy Trading.

You are most welcome AW10....look forward to your participation.

ST

 

[AW10]

You can do that vineet,but we trade 60 min method not for 50-100 points but 200-300 points. In case you get a buy signal and sell ATM put,your profit will be restricted to the premium received. So if premium received is 130 rupees,your profit will be only 130 rupees even if market moves 400 points in your direction....

ST

Vineet,
ST Da has already replied to it. I am adding my 2 cents on this topic below.

Long Call and Short Put are both bullish strategy. That puts a challenge to options trader to take one more decision on which one to use (luckily stock/ futures trading does not give us that choice).

IMO, The factors that should help in decision making are following

Market bias - directional bias which is bullish. Neither sideway nor down.
Return For Long Call it is gain in premium MINUS time decay. Gain could be HIGH to very high. upper limited. For Short Put it is loss in premium PLUS time decay. Gains are limited.
Risk - For long call, limited to the premium paid, for Short Put it could be High to Very High (IMO, there is nothing called Unlimited in the market, nifty can gap against the position may be 200 pts, 400pts but still that is limited)
Timeframe of trade For day or swing trade lasting in 2 to3 days, effect of time decay will not be much compared to the effect given by price movement.
Account size For long call account atleast big enough to afford the premium cost (bigger account depending upon the position sizing rules of the trader), For short put Need margin and the buffer big enough to handle High to Very high risk. Whatever happens, trader will not blow his account with Long call but with short put, it is possible.
Traders attitude towards cash flow - If one is pay fast, recover later then Debit strategy of Long call is fine. But if one wants to collect first and pay later then Short Put is credit strategy.

Markets are dynamic and hence IMO, there is no single answer to this question. We got to take the bigger picture into account (not during the market hours but before that when drawing up our trade plan).

If this is too much to handle then atleast following 2 factors will simplify the job
- Limited Risk and HIGH reward (Long Call) v/s HIGH Risk and Liimited Reward (Short Put)


Hope this helps (or confuses)
Happy Trading.

 

[pawarvijay]

Hi,

i hold certain shares of MIC Electronics at price 30 Rs and that is now 23 Rs odd. should i sell out or hold for a while.

Please give ur opinion on

 

[Smart_trade]

Further to my reply to Vineet's querry whether we should sell ATM put or buy call once we get a buy signal in our method like 60 min flow ,AW10 has added some very valid points we must consider while deciding whether to sell put or buy call. Thanks AW10....very good points put forward by you.

I have said in my first post that in options trading one has to be right on direction of the move,extent of the move and the duration of the move. The choice between selling put or buying call is also a function of extent of the move expected. In 60 min we trade the flow reversal so we expect a large move ...so selling put will restrict your profits ( agressive traders even can think of selling deep in the money puts...but we will talk about it later) But buying a call will give you large potential of the move with defined risk (to the extent of premium paid).

Even choice of a strike price will depend on the extent of the move expected.
If the large move is expected,one can buy deep out of the money call which is available cheap and give returns manyfolds if your direction and extent of the move is correct.

ST

 

[Smart_trade]

It is a totally wrong notion in the minds of option traders that one makes money only by option selling,pocketing the time decay,then one must practice fancy stuff like ratio backspreads,butterflies,Condors....and the like....totally wrong. There is no substitute to good analysis of the market and the right way to make money in options is buy call/put when market is taking breakout or breakdown,ride the move and make 100,200 or 300 % of your investment ( by way of premiums paid ) and get out once the move stalls,never stay invested in options We should also keep a stoploss of 20% of the premium if the mkt goes against you,take your loss and get out .

For deciding when to initiate the trade in options we require a system to analyse the underlying market action. One can use trendline breaks,breakout or breakdown from long consolidation,breakout from wedges,flags etc.Most of us are from miniflow and 60 min flow traders...so instead of trying to reinvent the wheel we will stick to 60 min flow as our basic analysis tool and trade all buy/sell signals with options....that will be a great combination

ST

 

[myvineet]

You can do that vineet,but we trade 60 min method not for 50-100 points but 200-300 points. In case you get a buy signal and sell ATM put,your profit will be restricted to the premium received. So if premium received is 130 rupees,your profit will be only 130 rupees even if market moves 400 points in your direction....

In case the market tanks and some overnight bad situation,you are taking unlimited risk by selling the put.

Instead of that if you buy a call your profits could be unlimited,but max risk limited to the premium paid. So in crash situation also you dont get hurt badly.

ST

got the point DA, yes if the market moves big way then my profit will certainly be reduced...

thanx a lot da

vineet

 

[myvineet]

Vineet,
ST Da has already replied to it. I am adding my 2 cents on this topic below.

Long Call and Short Put are both bullish strategy. That puts a challenge to options trader to take one more decision on which one to use (luckily stock/ futures trading does not give us that choice).

IMO, The factors that should help in decision making are following

Market bias - directional bias which is bullish. Neither sideway nor down.
Return For Long Call it is gain in premium MINUS time decay. Gain could be HIGH to very high. upper limited. For Short Put it is loss in premium PLUS time decay. Gains are limited.
Risk - For long call, limited to the premium paid, for Short Put it could be High to Very High (IMO, there is nothing called Unlimited in the market, nifty can gap against the position may be 200 pts, 400pts but still that is limited)
Timeframe of trade For day or swing trade lasting in 2 to3 days, effect of time decay will not be much compared to the effect given by price movement.
Account size For long call account atleast big enough to afford the premium cost (bigger account depending upon the position sizing rules of the trader), For short put Need margin and the buffer big enough to handle High to Very high risk. Whatever happens, trader will not blow his account with Long call but with short put, it is possible.
Traders attitude towards cash flow - If one is pay fast, recover later then Debit strategy of Long call is fine. But if one wants to collect first and pay later then Short Put is credit strategy.

Markets are dynamic and hence IMO, there is no single answer to this question. We got to take the bigger picture into account (not during the market hours but before that when drawing up our trade plan).

If this is too much to handle then atleast following 2 factors will simplify the job
- Limited Risk and HIGH reward (Long Call) v/s HIGH Risk and Liimited Reward (Short Put)


Hope this helps (or confuses)
Happy Trading.

thanx a lot , AW sir,

can't ask for more , got reply for your side...

its my wish to learn option trade from you & i remember how i used to push you to start a thread, hopeful that my wish fulfilled this way..

thanx & regards

vineet