my option calls

[AW10]

Which strike price for Dec 08 option?
You can use option calculator (shd be available on your brokers site) to find theoratical price any option.
Another thumb rule that u can use is to find out the price of Nov Call for same strike price and double that amount as you are looking at 2 months option. (it is thumb rule only).

Hope you have read and understood the risks involved with selling option and parameters that affects short option position.. otherwise, you might loose on this trade (and may loose big time).

Happy Trading

 

[terminator_123]

Just curious:

Instead of selling put and call at the the same levels (3400 in bandlab2's posts),
wont it be a good idea to sell the boundaries of the above trade (3000 put and 3800 call) when nifty is around 3400 ? (assuming the thinking behind the trade remains same: that nifty remains bound between 3000 and 3800)

Margin : should be approx. same
Risk : won't it be the same ?

Sorry if it sounds stupid

....
termite

 

[AW10]

IMO, No question is stupid.. Not asking a question is stupidity.. Great question and thats how u will learn.

When NIFTY is at 3400, both 3000 PUT and 3800 CALL are far out of money (OTM). So the premium is very low for them. 3400 CALL or PUT are At the Money (ATM)so they have maximum premium.
So when selling options, we want to sell the juiciest option.. not the one which doesn't have any juice.. And when Volatility is high, the juice is sweeter as option premium goes up.
Selling OTM option is certainly less risky, and hence has low reward as well. Selling ATM options carries more risk, but more reward as well. So the key here is to manage the risk of the risky trade.
This strategy of selling straddle works well in range bound market.. but last month we had extreme conditions and thats when this particular trade was hit badly.

To learn strangle, take a paper trade of selling strangle with strike at +/- 100 points of spot nifty level and observe how it behaves
To compare, take another paper trade of selling Straddle at spot nifty level.

No amount of theoratical knowledge can replace hands on experience so dirty your hands.

Hope this helps.
Happy Trading.

 

[rahul1983]

AW10 , I BOUGHT A STRABGLE instead of your SELLING STRATEGY

I bought 500 ( 2500 P and 3500 C ) Total Cost : 110

and since nifty is @ the same place from last 2 days the premium decayed to 75 now

Based on your exp , what you think will we get 3400 - 3500 / 2500 - 2600

in Nifty in November ????

Or should I book my loss when it comes near cost 90 - 100 ???

Plzz help i know i made a mistake by making strangle with 1000 range, now whats the way out of this trade ??? any strategy suggestions

Thanks
Rahul

 

[theekar]

rahul like u i also having 2300 put + 3500 call @80.
from last three days movement in nifty,now i think this month will be range bound like post july fall

 

[rahul1983]

theekar my cost is 110, while your cost is @ 80 and it is currently moving between 75- 85

I am in loss as of now ( 35 * 500 )

 

[theekar]

rahul i just noticed that you are in 2500 put,
i'm in 2300 put & 3500 call(ltp was 29+24=53)

 

[AW10]

AW10 , I BOUGHT A STRABGLE instead of your SELLING STRATEGY

I bought 500 ( 2500 P and 3500 C ) Total Cost : 110

and since nifty is @ the same place from last 2 days the premium decayed to 75 now

Based on your exp , what you think will we get 3400 - 3500 / 2500 - 2600

in Nifty in November ????

Or should I book my loss when it comes near cost 90 - 100 ???

Plzz help i know i made a mistake by making strangle with 1000 range, now whats the way out of this trade ??? any strategy suggestions

Thanks
Rahul

In trading option, you got to pay attantion to your breakeven point. It is the point that NIFTY has to reach by expiry to make your trade profitable.
For 2500 P and 3500 C at the cose of 110, upper breakeven point is at 3500+110 = 3610 and lower breakeven point is at 2500-110 = 2390.

So if market doesn't fall below 2390 or go above 3610, your trade will never be positive. It will loose more and more value everyday due to time decay. You got to understand that strangle /straddle will always have one leg loosing while other is gaining .so to really make money in such trade, one of the leg need to gain at faster rate that means you need breakout move like we had last month. Moreover due to high volatility, you might have paid higher premium. So if voltility comes down, then your options will loose money.

In slow moving / range bound market, buyer of these strategies has odds stacked against him.
So professionals, sell strangle in rangebound market, highly volatility market.. Ofcourse, don't jump into selling strangle as they involve risk.. so understand risk management first.

Hope you have better understanding of strangle now. So you decide on what is right for your trade. If your mkt analysis says that nifty is going to go beyond the breakeven points then hold the position .. But if not, then better to book small loss .. take this loss as learning cost and move on. Taking loss always hurts but that is part of trading.

IMO, 2400 to 3600 is quite far from current level of 3000 for nifty to travel in next 3 weeks. Probabliity of this happening is less (but it is still possible, specially on downside).. Much higher chance that we will be in this range.

Happy Trading

 

[terminator_123]

Adding to what AW10 said, may be it would be a good idea to buy a strangle when the market has moved too much with in last couple days. For example when nifty was at 2500, it fell to that level within two days or so. So is the case when it reached 3200. So a strangle of p2400, c2600 for the first case and c3300, p3100 for second case might have been good though the premium is high.

 

[detrich]

What are u all doing? Let the market decide what to do. Currently it is trading amrket till it breaks 2800-2850 in bottom and 3050-3100 again to decide. My advice will be to bite the bullet and wait for market to break just one of these levels to start taking positions. Strangles are very costly and waste of time when they do not come right. Currently the phase has changed. We are in bearish trading market nothing will be permanent. So beaware and do not enter any strangles as of yet.