Option Selling Especially Selling Put Guidance Needed

[sushilgirdher]

Friends, There are some people who are Selling Calls And Puts in Options. Rather than buying options, they Make money in Selling.

So i started this thread to know the rules, strategies and to get guidance in this direction
Pls share your views regarding when we can sell call and when we can sell put and under what conditions decision can be taken.
It would be highly thankful if someone gives real examples regarding all this....how price movement moves the premium of calls and put and how a sold put generate profit?

 

[Somatung]

@Sushilgirdher

First of all: I wish you all the best with this thread and I am sure many will join it. :thumb:

Second: You wrote: It would be highly thankful if someone gives real examples regarding all this....how price movement moves the premium of calls and put and how a sold put generate profit?

Simple answer to that and a MUST KNOWN when doing option trading: Know the option Greeks.

May I ask: Do you know them? and if not you may read in this thread http://www.traderji.com/options/92743-options-my-way-looking.html or if you want to spend more time you even can read in my old thread http://www.traderji.com/options/66266-option-trading-danpickup.html#post639903

Wish you all the best and take care / Dan

 

[simplebuthard]

@Sushilgirdher

See this economic times writing about how the option selling strategies are played by brokers in our current october scenario...these are live examples for you.

http://economictimes.indiatimes.com...-make-6-fold-returns/articleshow/49264905.cms

 

[wiseowl]

hi
one way to play this strategy which I have been paper trading with help of NSE Patshala and is giving me about 24% per annum. In the four week or on two weeks to expiry short OTM call and put. They way to determine the same is 1.5% away for a week. example as under :-

suppose Nifty future is at 8000 on four week to expiry then
1.5*4 = 6%
6% of 8000 is 480

call short strike would be 8000 +500 = 8500
put short strike would be 8000 - 500 = 7500
if taken today data call would give 18.80 *25 = 470
put would give 13.60 *25 = 340
a total of rs 810 per lot if nifty stay between 8500 and 7500 on expiry. You would require a margin money of approx. rs 30000 almost 3% return on investment. Please paper trade before investing. If comfortable then this could be made as monthly income strategy if one has investment money of rs 20,00,000/- earning aprrox 50,000 to 60,000 per month. If require any clarification please do ask your question. I am also taking baby steps in this market so may I request seniors to correct us if we are wrong

 

[Somatung]

@Wiseowl

There is nothing wrong with what you posted. If you like, I can spot on two topics you have not lost any word about it.

First:

You did not define how you want to handle or do handle your Stop losses on each side, if even, which you have to consider. Market can fall huge in a short time and then your lower level would be touched in between one week or two weeks. So here you will need to know how much room you have left at any time. This just a point you may work over in case you not have done it so far. I am sure you will manage that.

Second:

I just had a look at the maths and so far your risk is acceptable with those 6% you want to give on both side with the current average of 20% Vola shown on the India Vix. If Vola increases after you entered your trade, you get quicker in danger and if Vola decreases you have a safer trade. As you only mentioned the 6%, I thought I would like you to give this hint about Vola changes.

20% Vola:

25% Vola:

15% Vola:

Now I wish you all the best and have a good start into the new week / Dan

 

[wiseowl]

dear Dan,
Thank you sir, will work on your advice and post the answers. Hope to come with a workable answer ...... now fear is less at least some one is their to guide me. thanks once again

 

[amitglinkedin]

Sir,

Which tool are you using to calculate different volatility scenario.
Can you share url if this calculator is available online.
Thanks

@Wiseowl

There is nothing wrong with what you posted. If you like, I can spot on two topics you have not lost any word about it.

First:

You did not define how you want to handle or do handle your Stop losses on each side, if even, which you have to consider. Market can fall huge in a short time and then your lower level would be touched in between one week or two weeks. So here you will need to know how much room you have left at any time. This just a point you may work over in case you not have done it so far. I am sure you will manage that.

Second:

I just had a look at the maths and so far your risk is acceptable with those 6% you want to give on both side with the current average of 20% Vola shown on the India Vix. If Vola increases after you entered your trade, you get quicker in danger and if Vola decreases you have a safer trade. As you only mentioned the 6%, I thought I would like you to give this hint about Vola changes.

20% Vola:

25% Vola:

15% Vola:

Now I wish you all the best and have a good start into the new week / Dan

 

[Somatung]

@Amitglinkedin

It is a simple "Probability Calculator" which I got from a friend over ten years ago. No information are shown under "Properties".

Any way: You can use the following link and that'l'do: http://www.optionstrategist.com/calculators/probability

All the best and take care / Dan

 

[wiseowl]

@Wiseowl

There is nothing wrong with what you posted. If you like, I can spot on two topics you have not lost any word about it.

First:

You did not define how you want to handle or do handle your Stop losses on each side, if even, which you have to consider. Market can fall huge in a short time and then your lower level would be touched in between one week or two weeks. So here you will need to know how much room you have left at any time. This just a point you may work over in case you not have done it so far. I am sure you will manage that.

Second:

I just had a look at the maths and so far your risk is acceptable with those 6% you want to give on both side with the current average of 20% Vola shown on the India Vix. If Vola increases after you entered your trade, you get quicker in danger and if Vola decreases you have a safer trade. As you only mentioned the 6%, I thought I would like you to give this hint about Vola changes.

20% Vola:

25% Vola:

15% Vola:

Now I wish you all the best and have a good start into the new week / Dan

Dear Dan,

Had did some work and study. The simplest way would be to hedge the posn by buying a put and the call viz 8600 call and 7400 put. this would protect us from sudden overnight wild movements to either side. Let us say the cost is insurance .
The second measure would be to roll up (my term). ie.. let us say the price of underlying is increasing then the call side would be getting closer to be at ATM/ITM and the put would be making money I would like to close the put leg and bring it nearer to ATM area so that the break even point would go further out due to increase in premium gain.
let us say we were delta neutral at the beginning of strategy at 15. with the increase in price the call delta has gone up to 30 then I would carry out the adjustment to the strike price were put delta is now -15.

 

[Somatung]

Sorry and I edited my previous post as it seems I made a mistake, as you seem to talk about: 8600 call and 7400 call and not about "8600 call and 7400 put".

Now why the heck do you want to hedge your "Short Straddle" with this two calls? Sorry as I do not get it.

Dan