Correct me if I'm wrong about options

[Loss_Lover]

I had one more doubt.
Option writing can be done at a strike price which is both either below or above the current market price while option buying can be done only in one direction,.ie. if I want to buy a CALL option, I'll buy it at a strike price greater than the current price, but if I want to write one, I can do it at prices both higher or lower than CMP.
Similar thing for PUT options.
Is this right?

No.... You can buy/sell anything that you want as long as someone else is on the other side of your buy or sell. But the implications would vary. BTW @Ronith12 I do not wish to discourage you or de-motivate you, just an advice to stop posting and start studying options intensively. Trading Options can prove extremely dangerous if not done correctly. At the same time, Options are easy once you get the idea.

 

[Ronith12]

No.... You can buy/sell anything that you want as long as someone else is on the other side of your buy or sell. But the implications would vary. BTW @Ronith12 I do not wish to discourage you or de-motivate you, just an advice to stop posting and start studying options intensively. Trading Options can prove extremely dangerous if not done correctly. At the same time, Options are easy once you get the idea.

I'm not trading options. I'm learning about them so that I can use this knowledge for option chain analysis which will help me to understand the market better.

So, coming back to doubts. If the premium as well as OI increases on a PUT option, that means PUT LONG positions are being created at that strike price, right?
Now, PUT options are bought when we predict that the CMP won't cross the strike price in a downward direction. But you said that we can buy/sell anything.

My question is simple: How can you buy PUT at a strike price above the current price since PUT options are bought when the trader is bearish about the price and thinks that the price will cross strike price in a downward direction? Similarly, for CALL options, how can you buy them at a price lower than CMP?

 

[Loss_Lover]

I'm not trading options. I'm learning about them so that I can use this knowledge for option chain analysis which will help me to understand the market better.

So, coming back to doubts. If the premium as well as OI increases on a PUT option, that means PUT LONG positions are being created at that strike price, right?

You need to learn things gradually to help yourself man... Otherwise you will confuse yourself unnecessarily. Life is not a short-cut and learning Options is the last thing where you want to apply short-cut or even expect someone to give you a capsule. You need to cover lot of ground before you can realize the answer to this question.

Options are complex and need commitment for studying. JUGGAD NAHI CHALTA BHAI.......

The Answer to this question cannot be understood without the clear understanding of Implied Volatility which cannot be understood without understanding WHAT A CALL AND PUT IS !

And you do not understand the very basics.... Because if you had, then you would not have posted this question previously.

Option writing can be done at a strike price which is both either below or above the current market price while option buying can be done only in one direction,.ie. if I want to buy a CALL option, I'll buy it at a strike price greater than the current price, but if I want to write one, I can do it at prices both higher or lower than CMP.

Show some HARD Work and help will come but do not expect spoon-feeding...
All The Best.....

 

[CougarTrader]

This works for me on liquid Stock options wherein the underlying is generally not that volatile and there is no nearby Earnings. It does not apply on Indices. Every expiry risk-less 2%-5% return (at times even 7%), no high hopes just decent passive return. However, capital intensive but guaranteed profit irrespective of Market direction or choppiness.

(1) Bull Call Spread around ATM: Buy Lot(s) of the strike just ITM + Sell same no. of Lot(s) the strike just OTM;
(2) Sell 2 times the Lot unit(s) used in (1) of far OTM Call strike preferably above a Strong resistance but not more or less than 10% away from ATM.

Most importantly, after applying (1) and (2) one must get +ve credit at any cost after all Brokerage and Taxes. Goal is to keep this credit (preferrably increase it) no matter what.

Adjustments:
(1) If price goes above the Sold just OTM Call strike but well within the far OTM Call - No action;
(2) If price goes below the Sold just ITM/OTM strike Calls - No action;
(3) If price rapidly surges, gets ready to probe the Sold far OTM Call strike and breaches the proximity by 1%-2% from the far OTM Call strike - Cover the far OTM sold Call position and Sell double or treble the Lot(s) of initially sold far OTM Call to just the next far OTM Call strike; so as to negate the debit of covering the initial far OTM Call position by the premium credit of the newly sold just next strike to the far OTM Call position;
(4) Repeat (3) if price again surges to the newly sold far OTM Call.

As you can see No.3 adjustment and if needed No.4 adjustment(s) to follow would require more margin as you are required to make-up for the loss occurred by covering your previous far OTM Call with new credit. If one fails to adjust during scenario # 3 because of margin shortage, then it will be a huge loss. Otherwise if one implements 50% of his capital to begin with and keeps another 50% liquid to counter scenario # 3, then let the stock go as high as it wants, you just keep on adjusting till expiry or until Stock starts correcting from a Resistance level.

Entry: Last week of this current month expiry for next month contracts to capture in good credit;
Exit: If 4%-7% achieved within 1-3 weeks, otherwise a day or two before expiry.
Preferred Direction: Let the stock price plummet as much as it wants, no worry as the loss would be limited to the bought Call only after the initially received +ve credit and, moreover, we could always bring down our far OTM Call strike in order to increase profitability in such scenarios. However, maximum profit comes during choppy mild uptrend as your bought Call retains some intrinsic value, and because of non-volatility, and thetha-decay all your sold OTM strikes loses value.
Capital required: At least 5L, the higher you go, the easier it becomes. However, only 50% is to be deployed for position(s) and the remaining 50% must be kept cash (or invested into LiquidBees) to protect the position when and if required.
Add-on thought: Never exit or adjust the initial Bull Call Spread. All adjustments (either up or down) are to made on far OTM Call strike.

Thank you @Loss_Lover for sharing,
Gem of a post sir. A simple yet Great method to milk the markets. Might appear Slow but highly effective way to earn returns. So, at approximately 4% p.m. almost 100% return (even much higher when compounded) in 2 years if rules are followed religiously. Sir, please elaborate further with examples. Deserves a new thread.

 

[Loss_Lover]

Thank you @Loss_Lover for sharing,
Gem of a post sir. A simple yet Great method to milk the markets. Might appear Slow but highly effective way to earn returns. So, at approximately 4% p.m. almost 100% return (even much higher when compounded) in 2 years if rules are followed religiously. Sir, please elaborate further with examples. Deserves a new thread.

No "sir" please.... Thank you for kind words.... Will see for a new thread. BTW there are many other gems in TJ already with even better results - search and find. This is just one method learned over the years of toil and struggle.
Beware: Without substantial margin to make adjustment during a bull rally might prove fatal in this strategy.

 

[kingkrunal]

This works for me on liquid Stock options wherein the underlying is generally not that volatile and there is no nearby Earnings. It does not apply on Indices. Every expiry risk-less 2%-5% return (at times even 7%), no high hopes just decent passive return. However, capital intensive but guaranteed profit irrespective of Market direction or choppiness.

(1) Bull Call Spread around ATM: Buy Lot(s) of the strike just ITM + Sell same no. of Lot(s) the strike just OTM;
(2) Sell 2 times the Lot unit(s) used in (1) of far OTM Call strike preferably above a Strong resistance but not more or less than 10% away from ATM.

Most importantly, after applying (1) and (2) one must get +ve credit at any cost after all Brokerage and Taxes. Goal is to keep this credit (preferrably increase it) no matter what.

Adjustments:
(1) If price goes above the Sold just OTM Call strike but well within the far OTM Call - No action;
(2) If price goes below the Sold just ITM/OTM strike Calls - No action;
(3) If price rapidly surges, gets ready to probe the Sold far OTM Call strike and breaches the proximity by 1%-2% from the far OTM Call strike - Cover the far OTM sold Call position and Sell double or treble the Lot(s) of initially sold far OTM Call to just the next far OTM Call strike; so as to negate the debit of covering the initial far OTM Call position by the premium credit of the newly sold just next strike to the far OTM Call position;
(4) Repeat (3) if price again surges to the newly sold far OTM Call.

As you can see No.3 adjustment and if needed No.4 adjustment(s) to follow would require more margin as you are required to make-up for the loss occurred by covering your previous far OTM Call with new credit. If one fails to adjust during scenario # 3 because of margin shortage, then it will be a huge loss. Otherwise if one implements 50% of his capital to begin with and keeps another 50% liquid to counter scenario # 3, then let the stock go as high as it wants, you just keep on adjusting till expiry or until Stock starts correcting from a Resistance level.

Entry: Last week of this current month expiry for next month contracts to capture in good credit;
Exit: If 4%-7% achieved within 1-3 weeks, otherwise a day or two before expiry.
Preferred Direction: Let the stock price plummet as much as it wants, no worry as the loss would be limited to the bought Call only after the initially received +ve credit and, moreover, we could always bring down our far OTM Call strike in order to increase profitability in such scenarios. However, maximum profit comes during choppy mild uptrend as your bought Call retains some intrinsic value, and because of non-volatility, and thetha-decay all your sold OTM strikes loses value.
Capital required: At least 5L, the higher you go, the easier it becomes. However, only 50% is to be deployed for position(s) and the remaining 50% must be kept cash (or invested into LiquidBees) to protect the position when and if required.
Add-on thought: Never exit or adjust the initial Bull Call Spread. All adjustments (either up or down) are to made on far OTM Call strike.

thanks for sharing this.. and was trying to get this straight with a small example :

TATA motors: CMP:171.40 - Jan expiry
1- buy 170 ce- 9.8 and sell 175 ce - 7.45
2 - sell 2 lots of 185ce at 4..05
credit 7.45+4.05+4.05-9.8 = 5.75

scenarios:
1 - price between 175 to 185 do nothing
2- price below 175 or 170 - do nothing
3- if price increases above 185 by 1-2%.. lets say at 187 .. close the 185 ce sold and sell 4 lots of 190 call
4 -repeat step 3 if it increase more

Am i correct in above example ? or something i missed ?

thanks

 

[SarangSood]

thanks for sharing this.. and was trying to get this straight with a small example :

TATA motors: CMP:171.40 - Jan expiry
1- buy 170 ce- 9.8 and sell 175 ce - 7.45
2 - sell 2 lots of 185ce at 4..05
credit 7.45+4.05+4.05-9.8 = 5.75

scenarios:
1 - price between 175 to 185 do nothing
2- price below 175 or 170 - do nothing
3- if price increases above 185 by 1-2%.. lets say at 187 .. close the 185 ce sold and sell 4 lots of 190 call
4 -repeat step 3 if it increase more

Am i correct in above example ? or something i missed ?

thanks

Scenario number 1
1 - price between 175 to 185 do nothing.

The action you are taking if market reaches 185 is very late. You should shift to 190 at around 182. Shifting that late can result in more loss booking in 185ce because as an option reaches near ATM it's delta increases more rapidly.

A lot of people write options with a view or scenario to expire there position. It is also important to be in profit or neutral to reach till expiry.

 

[Loss_Lover]

Glad to know, you found this strategy of mine as interesting. Great you took up this example:

TATA motors: CMP:171.40 - Jan expiry
1- buy 170 ce- 9.8 and sell 175 ce - 7.45
2 - sell 2 lots of 185ce at 4..05
credit 7.45+4.05+4.05-9.8 = 5.75

scenarios:
1 - price between 175 to 185 do nothing

3- if price increases above 185 by 1-2%.. lets say at 187 .. close the 185 ce sold and sell 4 lots of 190 call

So, any given day whenever we see price starting to probe 2%-1% less of 185 (i.e. 181.30 - 183.15) do not wait for Santa Claus - safety first - make the adjustments. Note the amount you paid as premium debited for covering previously sold 185 CE, now the same amount or little more needs to be received as premium by selling the next strike at 190 CE. Having this said, there is no hard and fast rule that we will have to move to the nest strike, if situation demands or favorable for safety I might sell 195 CE (less premium but more lot equating the cover debit with new sell credit). Be flexible!

(1) If price goes above the Sold just OTM Call strike but well within the far OTM Call - No action;

(3) If price rapidly surges, gets ready to probe the Sold far OTM Call strike and breaches the proximity by 1%-2% from the far OTM Call strike - Cover the far OTM sold Call position and Sell double or treble the Lot(s) of initially sold far OTM Call to just the next far OTM Call strike; so as to negate the debit of covering the initial far OTM Call position by the premium credit of the newly sold just next strike to the far OTM Call position;

Preparation is everything. Consider S/R Levels, Weekly/Monthly/Yearly Pivots. Ideal situation would be when stock price fails to breach your safeguard zone of 1%-2% from the far OTM Call strike. So, there must lie a strong Resistance within this proximity. Best candidates are the stocks that have fallen below its 50 Days MA (so overall Long-term Downtrend), retracing from 20 Days MA (in shorter-term moving up in weakness).

Now don't be greedy or revengeful while making the adjustments, just take back the same or little more than what market took away from you, because you might need the capital for further re-adjustments. You get the idea, it's easier than Clash of Clans.

Stay prepared beforehand using a simple excel sheet for every credit/debit that you made, the Brok/STT/Other Charges you paid, along with the estimation of Brok/STT/Other Charges you might have to pay - things like that. The better you plan, the easier you will execute.

Before taking a position check NSE > Corporate Information > Equities. Avoid Earnings, Results, Volatile Stocks. And yes the position needs to be closely monitored every day at least thrice (Open/Mid-day/an hour before Close +vely) during a day.

All the Best

 

[kingkrunal]

Great you took up this example:



So, any given day whenever we see price starting to probe 2%-1% less of 185 (i.e. 181.30 - 183.15) do not wait for Santa Claus - safety first - make the adjustments. Note the amount you paid as premium debited for covering previously sold 185 CE, now the same amount or little more needs to be received as premium by selling the next strike at 190 CE. Having this said, there is no hard and fast rule that we will have to move to the nest strike, if situation demands or favorable for safety I might sell 195 CE (less premium but more lot equating the cover debit with new sell credit). Be flexible!



Preparation is everything. Consider S/R Levels, Weekly/Monthly/Yearly Pivots. Ideal situation would be when stock price fails to breach your safeguard zone of 1%-2% from the far OTM Call strike. So, there must lie a strong Resistance within this proximity. Best candidates are the stocks that have fallen below its 50 Days MA (so overall Long-term Downtrend), retracing from 20 Days MA (in shorter-term moving up in weakness).

Now don't be greedy or revengeful while making the adjustments, just take back the same or little more than what market took away from you, because you might need the capital for further re-adjustments. You get the idea, it's easier than Clash of Clans.

Stay prepared beforehand using a simple excel sheet for every credit/debit that you made, the Brok/STT/Other Charges you paid, along with the estimation of Brok/STT/Other Charges you might have to pay - things like that. The better you plan, the easier you will execute.

Before taking a position check NSE > Corporate Information > Equities. Avoid Earnings, Results, Volatile Stocks. And yes the position needs to be closely monitored every day at least thrice (Open/Mid-day/an hour before Close +vely) during a day.

All the Best

Yes.
Correct .. I was playing lot of strangles in last month ..got stuck in rcom .. did double down and escaped with 10k profit .. but it could have been dangerous.. so avoiding any stupid stocks..
Tata motors I was creating strangles 10 rs on each side.. and moving out or in when it reaches 5 rs on side.. earned good in that.. but needed something like this for better safety.. thanks for that ..

 

[Loss_Lover]

got stuck in rcom

Bhai udta teer kyun lena??? And that too with Options in RCOM.... Baap re baap
Trade those liquid stocks which are less volatile. Wait! I will jott down a list of stocks that I have traded using this method.