Low Risk Options Trading Strategy - Option Spreads

[sandy26jan]

thanks sumeet for replying..
jus one more thing if u cud tell me. in case, stock starts moving down. how would i cover my long future position. lets say it settles near 63. now i m making only 0.5 on short call but loosing over 2.00 on long future. net loss.
and as my original query was about squaring off a out of money short call. i have sold suzlon 65 jan series. i want to square off if stock hits 60 within this week or premium goes above 0.75, how to take care of both.
please help me..

 

[sumeetsj]

thanks sumeet for replying..
jus one more thing if u cud tell me. in case, stock starts moving down. how would i cover my long future position. lets say it settles near 63. now i m making only 0.5 on short call but loosing over 2.00 on long future. net loss.
and as my original query was about squaring off a out of money short call. i have sold suzlon 65 jan series. i want to square off if stock hits 60 within this week or premium goes above 0.75, how to take care of both.
please help me..

1. In case the underlying comes down near 65.5, u immediately square long futures position. Only drawdown will be in form of brokerages.

2. Untill the underlying is below 65 u need not worry even if it closes near 64.5 on some day. Untill it is below your Upper Breakeven point no need to worry.

Well lets say your next question would be what if there is a closing of 64.50 and i dont go long in futures, what if next day Suzlon opens gap up near 66 ?

Think.. there is a solution to this one too.

 

[sandy26jan]

thanks again sumeet for guiding me. I am a newbie in derivatives.
one soultion that i can think of is: lets say underlying is at 53 presently. and i have written call of 65 of this month. now if stock price hits say 62 befor this month's expiry i ll buy the future of the next month and hold to hit. in case closing of expiry is above 65 i ll sqaure off long future to pay for the drawdown. net profit position. and in case stock goes below 62 on expiry, i ll let the option expire and still have got one month to save the long future. please comment or suggest me some way to improve this strategy.

 

[sandy26jan]

one more little thing. i have never traded any forward contract. on nseindia.com gvkpower futures contract is showing. LTP is 38.25.
Cost of Carry
Best Buy Best Sell Last Price
Price 38.15 38.20 38.25
Cost Of Carry 3.42 6.83 10.24

if i go long what would be my margin requirement and cost to enter the trade (assume 0 brokerage). if i enter at 38.2 and square off at 40 after a week. what wud i get back in terms of ROI as i dont understand this cost of carry thing.
till now i have only been writing far out of money calls for last few months, and remained successful (my only strategy was, on first tuesday write atleast 20 % out of the money calls of slow moving stocks eg, infrastructures, sick telecoms etc with bad financial q-results). but now i am trying to learn hedging these positions too. looking forward to all of u seniors here for help !!

 

[sumeetsj]

thanks again sumeet for guiding me. I am a newbie in derivatives.
one soultion that i can think of is: lets say underlying is at 53 presently. and i have written call of 65 of this month. now if stock price hits say 62 befor this month's expiry i ll buy the future of the next month and hold to hit. in case closing of expiry is above 65 i ll sqaure off long future to pay for the drawdown. net profit position. and in case stock goes below 62 on expiry, i ll let the option expire and still have got one month to save the long future. please comment or suggest me some way to improve this strategy.

This will make the trade very complicated.
Net net the aim is to earn money by writing options. So why to get into a trade of next expiry which again u will have to manage ? simply write a PUT
Short straddles and strangles written at the start of the expiry are the best thing to do. Here time is also on your side
Uploading time decay chart..

 

[sumeetsj]

Go to http://www.samoasky.com/ and download Options Oracle
It will help u understand strategies and taking trades.

 

[sandy26jan]

thank you for suggesting the link

 

[deadbrain]

Hi

I have downloaded Samosky and installed it. Seems to work fine, but do not know about anything about delta, gamma, theta, vega, etc.

Does anyone know any link or book which could explain them clearly and/or any tutorial for this software?

Thankx

 

[Smart_trade]

Hi

I have downloaded Samosky and installed it. Seems to work fine, but do not know about anything about delta, gamma, theta, vega, etc.

Does anyone know any link or book which could explain them clearly and/or any tutorial for this software?

Thankx

Googlesearch option greeks...you will get all the information.

Smart_trade

 

[deadbrain]

I bought Feb242011 6000 call at Rs 48 approx on last session. Though I know market may go further down, but just took a contra call on IIFL recommendation. Is the strategy good? Or Should i exit on Monday or change the strategy? Any recommendations will be cordially accepted, still not good in options trading. I do not like selling options especially in this such a volatile market and unlimited risk.