Buying futures or Selling options. Which is good??

#1
Hi,

Is it a good idea to sell nifty option instead of buying nifty futures?

Below are the advantages we are getting from selling options (I got these info from Jegan's traders carnival speech),

1. We can use the margin from our investment in stocks, Liquidbees, mutual funds etc as collateral money. Our trading capital (which is in the stocks / bonds) is going to grow which is our passive income and trading income will be our active income.

So if we have a trading capital of Rs.1000000. we can invest Rs.800000 on Liquidbess which will give a monthly return of Rs.3500 (considering 5.5% return anaually) and keep the remaining Rs.200000 in trading account to cover MTM loss.


2. STT is very low if we sell options compared to nifty futures. For 10 lots of nifty futures the total tax and charges comes to around Rs.1300 whereas if we sell options the total tax and charges comes to around Rs.185. Difference of RS.1115.

If we are doing 20 trades per month then we will save around Rs.22000 in tax and charges. (Calculations are from zerodha brokarage calulator)


3. By selling options by default we have an edge of time decay.


Say for example as per my trading system if I get sell nifty at 11685. Instead of selling nifty futures, i will sell nifty call option 11700 CE.
If i get buy nifty at 11685. Instead of buying nifty futures, i will sell nifty put option 11650 PE. In both cases I am not going to wait till expiry. I will cover my long / short options as per my trading strategy. All positions will be open for max 2 days.


1. Is the selection of strike price good?
2. What happens when the option becomes zero? do we need to leave the position as it is?

Please provide your feedback and valuable inputs.

Thanks!
 

bpr

Well-Known Member
#2
keep in mind that ATM delta is roughly half of futures. So you need 2x option for a 1x futures.
But as soon as the option becomes otm then delta reduces so you need to sell and enter again at ATM or some other adjustment.
Again if the option becomes ITM the delta increases which might need readjusting (especially if you are loosing )

the best bet is to do short ITM options 300/400 points away from ATM as the delta is 0.9 and very less likely to change, so you need not adjust frequently but the liquidity and spread of such options are not that good.

last but not the least you are mercy of two other things vega and gamma they can steal your profits and there is nothing you can do
 
#3
Writing options has one advantage on your side and that is "Time Decay". Keep in mind, in option trading it's not only important that you are right in your anticipation but also how fast did the underlying move. So paramount importance has to be given to selecting the "right" strike price.

Now coming to your second query.. If you mean by zero the premium amount, then in that case you keep the premium you received when you sold the option.
 

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