NIFTY Options Trading by RAJ

How do you use OAT tool?

  • For Intraday Naked Options trading

    Votes: 58 37.9%
  • For Intraday Pair trading of Options

    Votes: 27 17.6%
  • For Intraday Futures trading

    Votes: 18 11.8%
  • For Positional Naked Options trading

    Votes: 35 22.9%
  • For Positional Pair trading of options

    Votes: 29 19.0%
  • For Positional Futures trading

    Votes: 11 7.2%
  • To trade in Cash market

    Votes: 12 7.8%
  • Overall trading has improved with OAT

    Votes: 26 17.0%
  • Understanding of Options has improved with OAT

    Votes: 56 36.6%

  • Total voters
    153
  • This poll will close: .

mohan.sic

Well-Known Member
Heathraj bro
I would like to bring it to your notice that your statement in rule one is contradicting. Correct me if I am wrong.
you have mentioned "BULLs have LONG Positions in the market. So to protect their LONGs they take the Opposite positions in the Options market by Selling the PUTS (PE) to hedge their positions,"
If bulls have Long position in the market to hedge their position either they sell CE or buy buy PE. but you have mentioned they will sell PE. its not correct. Could you please check.
or anybody else could you please check. thanks

John302928,

That's right. What you pointed is correct.
Don't waste your time on this method. The person who created this knows nothing about practical trading.
I have already pointed these mistakes to him long back, but irresponsible man dint care to edit the posts and still creating confusion in minds of readers.
 
Replying to john302928, Happy_Singh, mohan.sic on your linked posts.....

There is lot more to it than what usually meets the eye.... There is more than one way to hedge a trade using options.....

If you hedged a LONG position on stock by buying a PUT (ATM or ITM strike), it would be protective put and act more like simple term insurance against loss. If stock goes bullish as anticipated. purchased put expires worthless.

However with two purchases, your net cash outflow is negative... and if you were to also sell a lower strike put, you could recover some of the cost as well as do a synthetic trade that resembles "Bear Put Spread"....

There is a book named "The Option Trader Handbook. Strategies and Trade Adjustments" by George Jabbour that talks of all this mind-numbing brain-confounding heart-wrenching ideas and it is not a light read. I have read it four times and still it is good book to put anyone to sleep in a jiffy (way better than a pill)

Extract from page 92 of the book reads thus
Code:
.... assume you purchased 100 shares of EBAY at $100 and it has moved to $110. Due to your fears of a price
reversal, you wish to hedge your stock position with a protective put. A 2-month EBAY $110 Put is trading for $4.60 and an EBAY $105 Put with the same expiration is trading for $2.00. The stock position can be hedged simply by purchasing the $110 Put for $4.60. If this price seems a little high for protection for EBAY, you could purchase the $110 Put and then sell the $105 Put for a net debit of $2.60. The maximum profit from the bear put spread at expiration is $2.40 ($5.00 strike price difference minus net debit of $2.60).
 

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