Low Risk Options Trading Strategy - Option Spreads
- Thread starter AW10
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Hi friends
Hope my understanding is correct. Today on 5.2.10 I read this low rist stratergy. I followed it. i guessed the market is going to touch 4600. so I constructed a bearish spread. Buy 4800 PUT at 144/- and SELL 4700 PUT at 96/- At 9.30 AM. I found 4800 PUT is 156 and 4700 PUT at 109. The gain will be zero in this condition. Hope my calculation and understadnig is correct. Please explain and help me.
Regards
ravi
Hope my understanding is correct. Today on 5.2.10 I read this low rist stratergy. I followed it. i guessed the market is going to touch 4600. so I constructed a bearish spread. Buy 4800 PUT at 144/- and SELL 4700 PUT at 96/- At 9.30 AM. I found 4800 PUT is 156 and 4700 PUT at 109. The gain will be zero in this condition. Hope my calculation and understadnig is correct. Please explain and help me.
Regards
ravi
Hi Team,
I bought PE 4600 today (6th Feb) during special 1.30hours trading session expecting market will go down, but today NIFTY closed at 4757
Could someone advice how the NIFTY will perform on coming Monday (8th Feb). Should i book loss if NIFTY moving UP on Monday or should i HOLD for some time.
I bought PE 4600 for FEB month contract.
Your advice is really appreciated.
Thanks and Regards,
K7
I bought PE 4600 today (6th Feb) during special 1.30hours trading session expecting market will go down, but today NIFTY closed at 4757
Could someone advice how the NIFTY will perform on coming Monday (8th Feb). Should i book loss if NIFTY moving UP on Monday or should i HOLD for some time.
I bought PE 4600 for FEB month contract.
Your advice is really appreciated.
Thanks and Regards,
K7
Whenever u get right Reward / Risk ratio and right market signal for entry in your direction.
It has nothing to do with time of the month. In last week, because period of uncertainty is just few days, hence the reading of market direction becomes clear. But that is not just for you, it is for everybody out there. So your reward to risk ratio gets poorer at that time. Then it is no more low risk trading. That doesn't mean, u can't find good spread positions in last week. e.g. In Jan, 3rd week, mkt was in 5200/5300 range.
So if u had feeling that it is going to crash and 200 points move down is quite possible, then u could have take 5200-5100 bearish put spread at roughly 3:1 reward risk ratio.
i.e. risk 30 points to make 100 points. But it doesn't happen in all months where u get nice trend in last week.
Spread is directional strategy and hence your reading about the direction, and expected time (i.e. before the expiry, if u are planning to hold the trade till then).
If you are planning to hold for next 5 or 8 days, then ur directional call for next 8/10 days shd be correct. You may not get Max return in that case, but will certainly gain with low risk, i.e. even if market doesn't move as per your reading, ur losses will be far less then Long Call position.
Happy Trading
It has nothing to do with time of the month. In last week, because period of uncertainty is just few days, hence the reading of market direction becomes clear. But that is not just for you, it is for everybody out there. So your reward to risk ratio gets poorer at that time. Then it is no more low risk trading. That doesn't mean, u can't find good spread positions in last week. e.g. In Jan, 3rd week, mkt was in 5200/5300 range.
So if u had feeling that it is going to crash and 200 points move down is quite possible, then u could have take 5200-5100 bearish put spread at roughly 3:1 reward risk ratio.
i.e. risk 30 points to make 100 points. But it doesn't happen in all months where u get nice trend in last week.
Spread is directional strategy and hence your reading about the direction, and expected time (i.e. before the expiry, if u are planning to hold the trade till then).
If you are planning to hold for next 5 or 8 days, then ur directional call for next 8/10 days shd be correct. You may not get Max return in that case, but will certainly gain with low risk, i.e. even if market doesn't move as per your reading, ur losses will be far less then Long Call position.
Happy Trading
K7, plz understand what u are doing..and how the premium of your 4600 put will behave till expiry. If you are trading based on what people say, then ultimately u will be looser cuase they don't loose anything in saying that mkt will goto 4000 level before Feb expiry.
Lets assume, even if u had paid 65 rs for this. then market has to go below 4600 - 65 = 4535 level for your trade to make any profit..
With each passsing day, probablity of mkt going to level will keep reducing. So even if mkt goes down and closes at 4620, this position will be worth ZERO only.
In my view, we are already highly oversold after 600 points fall, so quite likely mkt will go sideway, or show little bounce. When will be next downleg, whether it will be or not, is anybody's guess. If both the cases ur position will be loosing value everyday.
My suggestion will be to decide on a level, below which u will cut your losses and if that level is reached, then cut the loss. Hope doesn't work in the market.
Specially with option, Time is most important factor so always ask BY WHEN? question and take trades.
All the best. Happy Trading
Lets assume, even if u had paid 65 rs for this. then market has to go below 4600 - 65 = 4535 level for your trade to make any profit..
With each passsing day, probablity of mkt going to level will keep reducing. So even if mkt goes down and closes at 4620, this position will be worth ZERO only.
In my view, we are already highly oversold after 600 points fall, so quite likely mkt will go sideway, or show little bounce. When will be next downleg, whether it will be or not, is anybody's guess. If both the cases ur position will be loosing value everyday.
My suggestion will be to decide on a level, below which u will cut your losses and if that level is reached, then cut the loss. Hope doesn't work in the market.
Specially with option, Time is most important factor so always ask BY WHEN? question and take trades.
All the best. Happy Trading
hi,
i am new to this options....
can any one explain ....
how to read the table and explain how to benefit from this?
i am new to this options....
can any one explain ....
how to read the table and explain how to benefit from this?
--------
To trade in options, we need to have following information with us
a) Underlying Security
b) Option Type - CALL or PUT
c) Contract Expiry
d) Strike price
Once you have all above information, you have unique identifier of the option contract that you can buy or sell in the market.
The table below can be logically divided in two parts. Left part of table has information related to CALL options and right part of table has information about PUT options.
In the center, we have various strike prices for option contract arranged in ascending order.
Expiry Date - This is the option contract's expiry date. Currently there are options of February-2010, March-2010 and April-2010 month are traded in the market.
Open Interest - Number of open positions for a particular strike price.
LTP = Last traded price
Net Change - % change in the price at which a particular option is traded in market last, with respect to the closing price of previous trading day.
Volume - Number of contracts traded today
Bid Quantity - Quantity given in the last open buy order for this particular strike price.
Bid Price - Price given in the last open buy order for this particular strike price.
Offer Price - Price given in the last open Sell order for this particular strike price.
Offer Quantity - Quantity given in the last open Sell order for this particular strike price.
You might notice that part of the table has cells with coloured background. These cells indicate that those particular strikes are In-The-Money. The cells with white background are for Out- of The-Money strikes.
Lets take and example and try to find the latest quote from the table. Lets say we want to Buy, Tatasteel PUT, Strike 500, Feb-10 expiry,
So you ensure that you are looking at option chain of February-10 expiry.
Then go to the row strike related to strike price = 500. As you are interested in PUT, so pay attention to the numbers on the right part of the table in this row.
We see bid quantity of 764 and bid price 10.35. I.e. someone is standing in the queue to buy the put at 10.35. So if we are a seller, then we will get this price for our market order. If we are placing market order to buy then we might have to pay more then 10.35.
Number in next 2 columns tells us that someone is ready to sell 764 quantities at 10.95. So if we are placing market buy order, then it will be filled at 10.95. Or if we are selling through market order then we might get a price less then 10.95.
Remaining info on this row is more for information purpose telling you that there are 172 contracts traded today, the price has fallen by 0.5% from yesterday's price. The last trade took place at 10.90 and as of now, 183360 is the open interest (OI). As the lot size for Tatasteel is 764, this OI results in 183360/764 = 240 contracts.
Hope this helps.
Happy Trading
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