How to earn 2% per week by Option Writing in Nifty and Bank Nifty?

[harish318]

I recently heard a very successful Option Trader who mentioned that he earns 2% per week by trading in Option Writing of Bank Nifty?

When I tried to find out how it is possible I did not get the answer.

My thoughts were as follows

Margin required for 1 lot of Option Writing in Positional Trade is approx Rs. 55000/- per lot. If I have to earn 2% then I need to profit by Rs. 1100/- per lot. Lot size is 20. So premium points that I need to earn is 1100/20 = 55. Also brokerage and other charges work out to Rs. 50 per lot. So that works out to premium points of Rs. 50/20 = 2.5. Thus I need to earn 57.5 points per week per lot to earn 2% on my locked margin ie. Rs. 55000/-

Now if we place a trade on Friday morning say a call write some 700 points from the Spot Price and hedge it with put write some 700 points from Spot Price the total premium (call + put) most of the time is around 50 to 80 points. Since there are 2 lots (1 call and 1 put) I need to get 57.5 x 2 = 115 points to earn 2%. So even if market is range bound one can get only 50 to 80 points. Also keeping strike price less than 700 points from Spot Price to earn more premium is risky. Then how can someone earn 2% per week in Option Writing.

 

[arjundas]

I recently heard a very successful Option Trader who mentioned that he earns 2% per week by trading in Option Writing of Bank Nifty?

When I tried to find out how it is possible I did not get the answer.

My thoughts were as follows

Margin required for 1 lot of Option Writing in Positional Trade is approx Rs. 55000/- per lot. If I have to earn 2% then I need to profit by Rs. 1100/- per lot. Lot size is 20. So premium points that I need to earn is 1100/20 = 55. Also brokerage and other charges work out to Rs. 50 per lot. So that works out to premium points of Rs. 50/20 = 2.5. Thus I need to earn 57.5 points per week per lot to earn 2% on my locked margin ie. Rs. 55000/-

Now if we place a trade on Friday morning say a call write some 700 points from the Spot Price and hedge it with put write some 700 points from Spot Price the total premium (call + put) most of the time is around 50 to 80 points. Since there are 2 lots (1 call and 1 put) I need to get 57.5 x 2 = 115 points to earn 2%. So even if market is range bound one can get only 50 to 80 points. Also keeping strike price less than 700 points from Spot Price to earn more premium is risky. Then how can someone earn 2% per week in Option Writing.

It’s for intraday. On the expiry day .
With 55k you can get arround 8 lots .
A 8-10 Rs premium can give you 1 to 2 %on the capital .

 

[TracerBullet]

There is no free lunch. Make sure you understand what you are doing and the risks.
Some people who apparently do understand still end up going bankrupt.

Maybe i misunderstood and my options knowledge is very limited, but how can sold calls be hedged by selling puts ? At best the sold puts give you premium and nothing more.

 

[Loss_Lover]

how can sold calls be hedged by selling puts ?

If you do so and the underlying stays within the range of strikes at expiry then the gain is the total premium collected from selling both call and put. Short Strangle is highly effective when Implied Volatility is expected to fall or in other words, when volatility subsides, or, when the market is strictly range bound with little or no expectant volatility. Having this said, if things turn out volatile, then Short Strangle will prove extremely dangerous, in that sense, one must not hedge sold calls by selling puts.

I have learned a technique after thousands of hours of chart reading and what not what not, to counter this scenario which works on Stock Options only, not on Index Options. I don't know what to call it. Anyways its a mixture of Naked Call Writing + Bull call spread and it works for me at every expiry irrespective of the direction of the Stock.

 

[TracerBullet]

Hedging implies limiting risk, selling puts will probably wont do that for sold calls. So you have some strategy and you manage as needed, fine - but its not hedged.
If OP starts thinking its hedged then some day understanding it may be very painful ..

 

[cloudTrader]

It’s for intraday. On the expiry day .
With 55k you can get arround 8 lots .
A 8-10 Rs premium can give you 1 to 2 %on the capital .

Which broker is providing 8 lots with Rs. 55k ?

 

[cloudTrader]

I recently heard a very successful Option Trader who mentioned that he earns 2% per week by trading in Option Writing of Bank Nifty?

When I tried to find out how it is possible I did not get the answer.

My thoughts were as follows

Margin required for 1 lot of Option Writing in Positional Trade is approx Rs. 55000/- per lot. If I have to earn 2% then I need to profit by Rs. 1100/- per lot. Lot size is 20. So premium points that I need to earn is 1100/20 = 55. Also brokerage and other charges work out to Rs. 50 per lot. So that works out to premium points of Rs. 50/20 = 2.5. Thus I need to earn 57.5 points per week per lot to earn 2% on my locked margin ie. Rs. 55000/-

Now if we place a trade on Friday morning say a call write some 700 points from the Spot Price and hedge it with put write some 700 points from Spot Price the total premium (call + put) most of the time is around 50 to 80 points. Since there are 2 lots (1 call and 1 put) I need to get 57.5 x 2 = 115 points to earn 2%. So even if market is range bound one can get only 50 to 80 points. Also keeping strike price less than 700 points from Spot Price to earn more premium is risky. Then how can someone earn 2% per week in Option Writing.

There is high chance of earning 2% on capital through Option Selling in Banknifty Weekly Options in Intraday trades. But that needs lot of understanding of how Options behave during various phases of market during the day.

 

[timepass]

It’s for intraday. On the expiry day .
With 55k you can get arround 8 lots .
A 8-10 Rs premium can give you 1 to 2 %on the capital .

Which broker is providing 8 lots with Rs. 55k ?

Good question. My question too.

 

[arjundas]

Which broker is providing 8 lots with Rs. 55k ?

Wisdom capital .
7k for bank nifty/lot

 

[timepass]

Wisdom capital .
7k for bank nifty/lot

Options ?? Wow !! Many brokers have margin between 7-8k for futures, but I don't know about options.