Picking up nickels in front of steamroller!!

[Capricorn]

Apology for missing your query.

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.

Yo mate, if the stock makes a run in one direction no point remaining in a strangle or even one side of it. Requires a fresh view point and fresh trade more suited to the new conditions.

 

[jvblogger]

TATASTEEL CALL 640 @ Rs.5.70
TATASTEEL PUT 470 @ Rs.3.00

SUZLON PUT 60 @ Rs. 00.75
SUZLON PUT 65 @ Rs. 00.90

NIFTY CALL 5400 @ Rs.22-50
NIFTY PUT 4700 @ Rs.22-00

NIFTY CALL 5300 @ Rs.36-00
NIFTY PUT 4800 @ Rs.31-00

ALL WERE WELL for December :thumb:

All option expired without getting in the money.

 

[jvblogger]

At 22.36% India VIX is perhaps at its lowest point and CBOE VIX is around 19% , lowest since Sep'08.

"India VIX is a volatility index based on the Nifty 50 Index Option prices. From the best bid-ask prices of Nifty 50 Options contracts, a volatility figure (%) is calculated which indicates the expected market volatility over the next 30 calendar days."(http://nseindia.com/content/press/prs_vix.htm)

Low IV is good time for option selling. Of course low volatility offers lower premium but better safety in absence of high volatility. (Option and Volatility)

 

[samip2u]

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.

I have also lost money in writing naked options. Thing is.... OTM writing deosnt give attractive commissions. I liked ur ida of writing OTMs for both sides, so atleast you will gain from one OTM. Howver, i am curious to knwo abt ur TA. Do u see the NIFTY movements graphically or you see the charts from som ether websites..?

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.

I feel, writing option is advantagous, when volatility is high, then the premium would abe high n hence higher commissions... isnt it .. do u follow Nifty VIX... how do u observe the volatility for the Stock options..??

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.

Any thumb rule to evaluate the liquidity... if u r using icici direct, then i think, they only allow trading nto liquit options, which they feel, liquit enough...and how often do u successfully able to write the OTM stock options...as you did for RNRL above..?

and hey congrats for havig all ur writen options expiring in the money...with dec expiry

 

[samip2u]

A few more related clarifications on Stock option trading..

1. ) Only a few scripts offering far OTM options ( close to 30% away from spot ). Now, suppose you hav writen an OTM PUT, and sooner you observed, that the stock price is comepltekly going against you. Does the liquidty help in minimising the losses by Squaring off the positions with a higher price ( hope Squaring off is allowed in IndiaStock Options ) ....

I mean, you got to have the exit strategies... else it might lead to disasters as the lot size in Stock option is large... and the margin req. are also lot more than Index trading....

I guess, these things might have also coe to your mid when you started with Stock writing... isn't it ??

reply pls.

 

[jvblogger]

Thanks for asking questions.

Your observation is correct, not many stock offer far OTM options.

I am not sure if I have understood your query. If I have purchased a PUT, and price starts going down, then mostly the PUT option would be liquid. But then how liquidity would help in minmising the loss?

I have exit plan as I have stated earlier, using the both side's collected premium as total buffer. However, I am clearly aware that in case sudden price move in stock options damages could be heavy.

Margins for stock options also quite high compared to 4+3% of NIFTY options.

Thanks again for asking questions.

 

[jvblogger]

I have also lost money in writing naked options. Thing is.... OTM writing deosnt give attractive commissions. I liked ur ida of writing OTMs for both sides, so atleast you will gain from one OTM. Howver, i am curious to knwo abt ur TA. Do u see the NIFTY movements graphically or you see the charts from som ether websites..?

I feel, writing option is advantagous, when volatility is high, then the premium would abe high n hence higher commissions... isnt it .. do u follow Nifty VIX... how do u observe the volatility for the Stock options..??

Any thumb rule to evaluate the liquidity... if u r using icici direct, then i think, they only allow trading nto liquit options, which they feel, liquit enough...and how often do u successfully able to write the OTM stock options...as you did for RNRL above..?

and hey congrats for havig all ur writen options expiring in the money...with dec expiry

Again, I missed these questions.

Writing options on both sides allows to write farther OTM options , as we collect premium for both side and ofcouse, one side option keeps clear.

I use Icharts.in for view charts. I use Envelope to check the possible moving range. Also rely on ADX to check volatility/momentum. Also use MACD/RSI generally.

Ofcouse, if volatility is high then premium would be high. But if the historical volatility is higher than implied volatility of the option selected, then it is higher chance of movement in the direction. Therefore, if implied volatility is higher than the historical volatility then there is higher probability that the strike price may not reach.

You can get historical volatility from various sites, here is one of the site http://www.khelostocks.com/stockVolatility.html. Here is another link which provides excel sheet where you can check historical volatility and plot against the price.

For implied volatility you have to calculate each options individually and they kept changing.

Angel also dose not allow selling illiquid options, I have to trade by calling them in the office.

Thanks I will try to steer clear in Jan' also.

 

[samip2u]

Your observation is correct, not many stock offer far OTM options.

I am not sure if I have understood your query. If I have purchased a PUT, and price starts going down, then mostly the PUT option would be liquid. But then how liquidity would help in minmising the loss?

Let me ask my query in simpler words. Suppose you have SHORT PUT on RNRL for strike 50 ( when today the spot is 70 ). You have written the PUT with an assumption that the price of RNRL won't fall drastically and even if it fell, it would be above 50 , thus you collect the commission ( say 0.75 )
Now if price falls drastically to 55 unlike your prediction, and PUT option got attractive and premium rises ( say 10 ).. there is a high chance that the PUT buyer can execute its option that you have written...

So, either we need to square of the Position.. but does the market would be liquid enough always.... for the square off..as in ATM NIFTY options.

and secondly... do u set any stoploss to minimise these disasters... as if the above situation happen... the potential loss could be more than 1000% of the collected commission...

[QUOITE] Margins for stock options also quite high compared to 4+3% of NIFTY options. [/QUOTE]
what the usual margin req. for one lot of 35-30% OTM option writing...for the stocks ? i want to have an idea ?

 

[jvblogger]

Let me ask my query in simpler words. Suppose you have SHORT PUT on RNRL for strike 50 ( when today the spot is 70 ). You have written the PUT with an assumption that the price of RNRL won't fall drastically and even if it fell, it would be above 50 , thus you collect the commission ( say 0.75 )
Now if price falls drastically to 55 unlike your prediction, and PUT option got attractive and premium rises ( say 10 ).. there is a high chance that the PUT buyer can execute its option that you have written...

So, either we need to square of the Position.. but does the market would be liquid enough always.... for the square off..as in ATM NIFTY options.

and secondly... do u set any stoploss to minimise these disasters... as if the above situation happen... the potential loss could be more than 1000% of the collected commission...

what the usual margin req. for one lot of 35-30% OTM option writing...for the stocks ? i want to have an idea ?

Interesting question, thanks for asking. That would be the worst nightmare for any option writer!!

Ofocurse, if RNRL suddenly moves to 55 from 70, then it is less likely that 70 put would be liquid enough for me to square off the position. In such extreme circumstances I would have to hedge the option with future or another option to prevent further loss. It is difficult to say that which instrument and
mode I would prefer to minimise my loss, as it would depend upon the situation and reason for such move.

Possible step/s...

1. sell future if believe further downside.
1a. sell call in addition to future if I am believe that the stock would not recover soon.
2. buy next step put if I believe further downside
3. buy ATM call if I believe a bounce back in stock

There can be more strategies , and that too can go wrong as well !!

As to option margin, each stock margin is calculated individually based upon their volatility. This excel sheet of Sharekhan may give an idea to margins. Margins may little bit vary from broker to broker.

 

[jvblogger]

For Jan'10 I have sold following options.

RNRL 90 CALL @ .90
RNRL 60 PUT @ 1.00

DLF CALL 420@ 3.60
DLF PUT 340 @ 7.30

Both puts seem somewhat risky