Picking up nickels in front of steamroller!!
- Thread starter jvblogger
- Start date
- Tags naked option selling option selling option writing
I think you misunderstood susobhan. I look at the Implieds of options merely to select the best strikes to buy/sell. IV just tells us the market expectations of the stock, not necessary that the market willl be right though.
Here's a good link on IV's http://www.optiontradingpedia.com/free_implied_volatility.htm
Technically DLF should be positive above 400 as per the present chart.
Here's a good link on IV's http://www.optiontradingpedia.com/free_implied_volatility.htm
Technically DLF should be positive above 400 as per the present chart.
I think you misunderstood susobhan. I look at the Implieds of options merely to select the best strikes to buy/sell. IV just tells us the market expectations of the stock, not necessary that the market willl be right though.
Here's a good link on IV's http://www.optiontradingpedia.com/free_implied_volatility.htm
Technically DLF should be positive above 400 as per the present chart.
Here's a good link on IV's http://www.optiontradingpedia.com/free_implied_volatility.htm
Technically DLF should be positive above 400 as per the present chart.
Susobhan
Thanks Capricorn and Susobhan for your views and query. It forces me to contemplate deeper before replying.
Average IV of most Jan'10 options (410-420 call AND 340-350 put) as on today is around 44%, lower than stock's annuaised volatility of 51%.
However, I was confused while counting periodical volatility. As the given IV is annuaised, I want 30 days volatility with standard deviation.
https://www.redoption.com/implied_volatility_explanations.php
Thanks again, Capricorn and Susobhan for positive participation. I was bit afraid that someone might jump and would start frightening me with "unlimited-risk" aspect of writing option.
Average IV of most Jan'10 options (410-420 call AND 340-350 put) as on today is around 44%, lower than stock's annuaised volatility of 51%.
However, I was confused while counting periodical volatility. As the given IV is annuaised, I want 30 days volatility with standard deviation.
https://www.redoption.com/implied_volatility_explanations.php
"If you assume that a stock has an annualized volatility of 35%, how much might it move in 1 day, 1 week, or 1 month? Well, open that statistics book again and see that the standard deviation increases proportionately to the square root of time. So, if there are 252 days in a year, you want to multiply 35% by the square root of 1/252 to get the 1 standard deviation for 1 day. That comes out to about 2.2%. So, in one day, two-thirds of the time the stock will be between up and down 2.2%.
To get that number for any number of trading days from today, multiply 35% by the square root of the number of days/252. That is, for the range 5 days from now, multiply 35% by the square root of 5/252. For 20 days from now, multiply 35% by the square root of 20/252. So, in 5 days, theoretically two-thirds of the time the stock will between up and down 4.93%, and in 20 days, between up and down 9.86%.
This calculation is no guarantee of what a stock will do, and is susceptible to changes in volatility. But it is one more tool you can use to become a more informed trader. "
To get that number for any number of trading days from today, multiply 35% by the square root of the number of days/252. That is, for the range 5 days from now, multiply 35% by the square root of 5/252. For 20 days from now, multiply 35% by the square root of 20/252. So, in 5 days, theoretically two-thirds of the time the stock will between up and down 4.93%, and in 20 days, between up and down 9.86%.
This calculation is no guarantee of what a stock will do, and is susceptible to changes in volatility. But it is one more tool you can use to become a more informed trader. "
Thanks again, Capricorn and Susobhan for positive participation. I was bit afraid that someone might jump and would start frightening me with "unlimited-risk" aspect of writing option.
According to your earlier post u would square off the loosing option once the premium reaches your total premium collected. That leaves u with a naked short option position with no buffer now since the collected premium is lost already.
What if the market turns against u now ??? Where do u get out of the remaining position? Just trying to understand the risk reward of the strategy.
Thanks for your patience.
What if the market turns against u now ??? Where do u get out of the remaining position? Just trying to understand the risk reward of the strategy.
Thanks for your patience.
Ordinarily ,with my little experience, when an option quickly runs in one direction significantly , then the premium of other side option is almost insignificant. Then depending upon the circumstances ,after squaring off the loosing option I would trade the remaining option.
Suppose in first case, if DLF within 3-5 days moves to 400 , and premium of 410 reaches to Rs.15 (total premium collected). Then I would square off the loosing position and also square off the other option (340-350 put) which would be anywhere around Rs.00.10-.50.as there is still significant time is left with probability to move in opposite direction.
In second scenario if DLF moves to around 400-410 in last few days of expiry in such case, after squaring off the loosing option, it may not be necessary to square off the other side as the would be little possibility for DLF to again reach to 340-350 in few days from 400-410.
However, despite all exit plans , the decision depends upon case-to-case, and and upon peculiar circumstances of the given time. In case of any local-global event which may impact heavily could also warrant squaring of all options.
RNRL has remained range-bound between 67-75 since 1-11 and I wish to take the benefit of that range-boundness by selling RNRL options.
Jan'10 Rs.90-00 Call was available at around Rs.1-10. If you see the chart there is largely unlikely that RNRL can reach to Rs.90-00 by Jan' expiry. The annualised volatility of the stock is at 35%, where as Jan' Rs.90-00 option has implied volatility around 70%!! PCR of Jan'10 options is also on bullish tone ata round 0.21
I have sold 90 call at 0.90. I could not sell at higher rate as Angel Odin did not allow me to trade reason being it was too early (10:10 am) and no liquidity was available
I ordinary execute second leg of other side option at same time. However, again I was not able to execute RNRL 65 put @ 2.20. RNRL 65 PUT is bit risky but considering the support around 67, I am taking the chance with 65 PUT.
Jan'10 Rs.90-00 Call was available at around Rs.1-10. If you see the chart there is largely unlikely that RNRL can reach to Rs.90-00 by Jan' expiry. The annualised volatility of the stock is at 35%, where as Jan' Rs.90-00 option has implied volatility around 70%!! PCR of Jan'10 options is also on bullish tone ata round 0.21
I have sold 90 call at 0.90. I could not sell at higher rate as Angel Odin did not allow me to trade reason being it was too early (10:10 am) and no liquidity was available
I ordinary execute second leg of other side option at same time. However, again I was not able to execute RNRL 65 put @ 2.20. RNRL 65 PUT is bit risky but considering the support around 67, I am taking the chance with 65 PUT.
Hi Jvblogger,
Wiring options naked options looks so risky..... however, i just curious to know,
1. if u r into writing option, though... ur writing OTM options...how often have you lost money.... due to large unfavoured swing in the market?
2. Do wait till expiry of SHORT positions... of anticipate a wrong open position and hedge it thr some Long position or square off..??
3. Lastly, Liquidity is a big question mark in Stock Options ( baring a few stocks like unitech/suzlon/RIL ) ... i never traded in stock options... how is it actually... do you get almost always enough liquidity to WRITE stock options ?
I believe, writing options, though risky.. but is a good thing.. if can be a wise thing, if you don't have much time... guess.. i need to see n watch out for the Big swings....i mean unfvourable ones....
I will appreciate you, if you share your views on the above. thanks.
Thanks and I appreciate your interest in option writing.
Not that writing naked option looks risky, it is risky.
I am infant in option writing, it has been just four months for which I have taken option selling sincerely. Therefore, you may weigh my views accordingly.
1. In the beginning I used to sell single side option, and to collect some decent premium I had sell nearer OTM. At that time I lost twice.
Once in NIFTY 4900 call in September when spot NIFTY was 4600. However the NIFTY moved quickly to 4900 and then 5000. I had lost around 5,000-00 on account not having any exit plan. Even I had not planned the entry as well.
Second time when I found that during the last week of expiry, premium decays quickly. So I became greedy and sold TATASTEEL 560 CALL when spot price was 553. Next day the premium increased some Rs. 2-00 and I squared off my position with loss of around 1600-00.
Thereafter, I try to sell far OTM on both side and after going through charts and TA and avoid any underlying if I am not comfortable with. I prefer range bound stocks.
2. I had written about that somewhere above in the thread. If the underlying has moved too quickly leaving many days to expiry, I would square off the position. At present I do not intend to use setting off the loosing position by buying future or farther options. However, I intend to use farther option in only highly volatile time, that too in put side.
3. Ofcourse, liquidity is biggest problem. However, I plan according to availability and liquidity of options. Jan'10 expiry for TATAMOTORS and TATASTEEL did not offer CALL option too far from the spot price, so I have avoided them. Whereas RNRL provided CALL of 90, nearly 30% far from the spot price of 70.
I am also waiting for unfavorable / volatile market to refine and test my strategies.
Not that writing naked option looks risky, it is risky.
I am infant in option writing, it has been just four months for which I have taken option selling sincerely. Therefore, you may weigh my views accordingly.
1. In the beginning I used to sell single side option, and to collect some decent premium I had sell nearer OTM. At that time I lost twice.
Once in NIFTY 4900 call in September when spot NIFTY was 4600. However the NIFTY moved quickly to 4900 and then 5000. I had lost around 5,000-00 on account not having any exit plan. Even I had not planned the entry as well.
Second time when I found that during the last week of expiry, premium decays quickly. So I became greedy and sold TATASTEEL 560 CALL when spot price was 553. Next day the premium increased some Rs. 2-00 and I squared off my position with loss of around 1600-00.
Thereafter, I try to sell far OTM on both side and after going through charts and TA and avoid any underlying if I am not comfortable with. I prefer range bound stocks.
2. I had written about that somewhere above in the thread. If the underlying has moved too quickly leaving many days to expiry, I would square off the position. At present I do not intend to use setting off the loosing position by buying future or farther options. However, I intend to use farther option in only highly volatile time, that too in put side.
3. Ofcourse, liquidity is biggest problem. However, I plan according to availability and liquidity of options. Jan'10 expiry for TATAMOTORS and TATASTEEL did not offer CALL option too far from the spot price, so I have avoided them. Whereas RNRL provided CALL of 90, nearly 30% far from the spot price of 70.
I am also waiting for unfavorable / volatile market to refine and test my strategies.
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