Options For all Seasons

[rh6996]

Very new to Options. Please reply this very basic question :
I wish to trade Options based on my directional or view on levels. Examples :
Say at the start of the derivative month, Nifty is 7800, and my view is that Nifty may correct but will not close below 7500. During the month Nifty goes down to 7560 and recovers and crosses 7900.
a. If I bought a 7900 call at the start of the Month, how should I hedge it ?
b. I sold a 7500 PUT at the start of the month, how should I hedge it?

Thanks.

 

[Somatung]

Very new to Options. Please reply this very basic question :
I wish to trade Options based on my directional or view on levels. Examples :
Say at the start of the derivative month, Nifty is 7800, and my view is that Nifty may correct but will not close below 7500. During the month Nifty goes down to 7560 and recovers and crosses 7900.
a. If I bought a 7900 call at the start of the Month, how should I hedge it ?
b. I sold a 7500 PUT at the start of the month, how should I hedge it?

Thanks.

What did you try until now as there are so many ways to handle such situations? How familiar are you with option strategies and if you are familiar with some, which one would be your favorite one?

 

[rkkarnani]

What did you try until now as there are so many ways to handle such situations? How familiar are you with option strategies and if you are familiar with some, which one would be your favorite one?

I have same query....
I have hardly traded options. Rare times that I did, I simply bought either a Call or a Put, naked ones and usually a bit out of money strikes! The exposure I have abt Options is not worth referring to!

 

[rh6996]

What did you try until now as there are so many ways to handle such situations? How familiar are you with option strategies and if you are familiar with some, which one would be your favorite one?

I did 'actual trade" in Aug 2014 of miniature quantity.
On 31st July I bought One Lot around closing time 7900 strike Nifty CE at 53.xx
Around 10th or 11th Aug it went below Rs.10/-
Nifty did a low of 7565 or so during this period.
On 12th Aug market rose by 100 points and I bought 1 more 7900 CE at ~23 !
Yesterday it did a high of 67 and I exited 1 lot at 58 ! Now holding 1 lot with average cost ~20/-

Buying at 53, I could hold it even when it went down sub 10 was only because I was holding just 1 lot! Had I entered multiple lots I would have exited the very next day on 1st Aug when price plunged to below 25! Nifty had tanked by >100 points!

Any pointers how to handle such trade when aiming to trade say 50 lots !

 

[Somatung]

@rh6996

In the above post you explain that you did average your position to get a cheaper entry price. Means you are a person who likes to rise the risk on such positions. Your assumption was clearly that market must go up, so you took the risk on that assumption.

Well, that is a way to trade and if you do that regularly, you must have some knowledge about it. Your posting even shows that you may are interested to average with 50 lots and may are searching for a MM system with that amount.

As averaging a position is not in my interest and as I not do average naked longs, I not can give you any advise in that direction as a private trader. Some Institutions/hedge funds/share funds/ETF's do and can average, as there is enough capital in the back to stand big moves against them for a long time.

Here just one of the most simple ways you can do it with out averaging is converting your long call leg into a credit spread when market moves down and when market moves up you open the credit spread and stay only with the long leg. That is an absolute most simple way to do it and not needs any further explanations from my side. If you are not sure about what I posted, do paper trade it for around two months to get a grip on it.

Take care and enjoy your weekend / Dan

 

[rh6996]

@rh6996

In the above post you explain that you did average your position to get a cheaper entry price. Means you are a person who likes to rise the risk on such positions. Your assumption was clearly that market must go up, so you took the risk on that assumption.

Well, that is a way to trade and if you do that regularly, you must have some knowledge about it. Your posting even shows that you may are interested to average with 50 lots and may are searching for a MM system with that amount.

As averaging a position is not in my interest and as I not do average naked longs, I not can give you any advise in that direction as a private trader. Some Institutions/hedge funds/share funds/ETF's do and can average, as there is enough capital in the back to stand big moves against them for a long time.

Here just one of the most simple ways you can do it with out averaging is converting your long call leg into a credit spread when market moves down and when market moves up you open the credit spread and stay only with the long leg. That is an absolute most simple way to do it and not needs any further explanations from my side. If you are not sure about what I posted, do paper trade it for around two months to get a grip on it.

Take care and enjoy your weekend / Dan

Your assumptions are not correct! I do not wish to average on 50 lots. I did average when mkt started rising and not just for the sake of averaging...thats beside the point. And most importantly it was just 2 lots in all that I could dare to average.
As I look forward to Options in higher quantities hence this query. As suggested will try Credit leg strategy on paper. Thanks for your input.

 

[rkkarnani]

@rh6996

In the above post you explain that you did average your position to get a cheaper entry price. Means you are a person who likes to rise the risk on such positions. Your assumption was clearly that market must go up, so you took the risk on that assumption.

Well, that is a way to trade and if you do that regularly, you must have some knowledge about it. Your posting even shows that you may are interested to average with 50 lots and may are searching for a MM system with that amount.

As averaging a position is not in my interest and as I not do average naked longs, I not can give you any advise in that direction as a private trader. Some Institutions/hedge funds/share funds/ETF's do and can average, as there is enough capital in the back to stand big moves against them for a long time.

Here just one of the most simple ways you can do it with out averaging is converting your long call leg into a credit spread when market moves down and when market moves up you open the credit spread and stay only with the long leg. That is an absolute most simple way to do it and not needs any further explanations from my side. If you are not sure about what I posted, do paper trade it for around two months to get a grip on it.

Take care and enjoy your weekend / Dan

Dan, Please find time to answer : In the above example of RH, what strike Call/Puts would you take position in while taking a Credit spread and how would one time it, i.e. at what point one should take this position in Credit Spread!?

 

[Somatung]

Dan, Please find time to answer : In the above example of RH, what strike Call/Puts would you take position in while taking a Credit spread and how would one time it, i.e. at what point one should take this position in Credit Spread!?

Kindly try it first by your self, post what you think it could be with the chart you used to do this analyzes and then let me give you any view from my side if even needed. You even can PM that chart if you feel to do so. Dan

 

[lemondew]

If you have that view

a) buy 7700 put will cost you lets say 40

If nifty doesnt go down you loose the premium.
b) So you sell 7550/7600 put. That will make your premium say 40 - 10 = 30

Thats a put debit spread.

Very new to Options. Please reply this very basic question :
I wish to trade Options based on my directional or view on levels. Examples :
Say at the start of the derivative month, Nifty is 7800, and my view is that Nifty may correct but will not close below 7500. During the month Nifty goes down to 7560 and recovers and crosses 7900.
a. If I bought a 7900 call at the start of the Month, how should I hedge it ?
b. I sold a 7500 PUT at the start of the month, how should I hedge it?

Thanks.

 

[taruj]

Right now I am trying to study the margin requirements for these strategies.

Unfortunately, most of the managers at brokerages are not knowledgeable about this subject.

For example, if one gets into calendar call/put or double calendar strategy, as long as one does not square off any leg, there is no need to keep any margin since the risk to both the trader as well as broker is nil.

Another issue is about exposure margin. Say, if for selling one lot nifty option, SPAN margin is 30,000 and exposure margin is 20,000, can the broker at his descretion waive exposure margin? Is it necessary to have securities in your Dmat account so that after hair cut broker has enough securities to enable him waive exposure margin?

I feel, if one wants to regularly trade in these strategies, margin requirements
is a very important part to reduce overall cost of the trade.

zerodha provides a lot of choices in terms of margin req-
have a word with them ..

rgds