Put option writing

#1
Hi all,

I am trading in options with reasonable success writing only PUT options of NIFTY and other large cap NIFTY stocks.Trades are usually squared off if 50% profit made in less than a week.Most importantly i am willing to roll over the options to next month if my trade didn't work out.
 

anup

Well-Known Member
#2
Hi all,

I am trading in options with reasonable success writing only PUT options of NIFTY and other large cap NIFTY stocks.Trades are usually squared off if 50% profit made in less than a week.Most importantly i am willing to roll over the options to next month if my trade didn't work out.
If you are writing Put options means you are bullish. The last few weeks we have seen nifty from 5100 levels to 6100 levels. And nifty was very bullish and you might have made profits.But by writing put every time you cannot get success.. Please elaborate your methodology so that we can also learn
 
#3
Hi,

My philosophy of put writing is based on the belief that fear has a limit but greed has none.I don't write put options all the time just to be in the market, but write them only whenever the premiums justify the risk.I believe in waiting to get the price i want to buy and get paid in the process rather than just buying on the spot.I use only ITM (In The Money) options if at all i want to buy/sell rather than futures as they give the leverage and risk management.


Rules for my trading:

1. I use MACD (12,26,9) and RSI(14) for identifying the strikes to write options
2. Prefer writing options at the start of trend identified using crossovers of +DI and -DI in ADX(14)
3. Identify oversold conditions during downtrends using above indicators to find great trades to profit from large IV (Implied volatility) of put options
4. I use only Hourly and daily charts and 5 min charts of last one hour of trading to see the setup of next day.
5. My trading style doesn't generate many signals and i am happy to rollover my positions to next month if i am struck with unexpected loss below my strike price.
 

anup

Well-Known Member
#4
Thanks bro, for your explanation.. My question is why not go for buying naked call option instead of writing puts?..The margin required to buy naked call option will be lesser than the margin required for writing put..

Hi,

My philosophy of put writing is based on the belief that fear has a limit but greed has none.I don't write put options all the time just to be in the market, but write them only whenever the premiums justify the risk.I believe in waiting to get the price i want to buy and get paid in the process rather than just buying on the spot.I use only ITM (In The Money) options if at all i want to buy/sell rather than futures as they give the leverage and risk management.


Rules for my trading:

1. I use MACD (12,26,9) and RSI(14) for identifying the strikes to write options
2. Prefer writing options at the start of trend identified using crossovers of +DI and -DI in ADX(14)
3. Identify oversold conditions during downtrends using above indicators to find great trades to profit from large IV (Implied volatility) of put options
4. I use only Hourly and daily charts and 5 min charts of last one hour of trading to see the setup of next day.
5. My trading style doesn't generate many signals and i am happy to rollover my positions to next month if i am struck with unexpected loss below my strike price.
 
#5
My current Outstanding option trades

ICICI Bank Sold 920 PUT @ 44

NIFTY Sold 5900 PUT @ 34

Recent trades:

HDFC BANK Sold 610 PUT @ 9 and Bought @4.3


17/10/2013 EOD setup

NIFTY closed below Hourly support 6078 and next hrly support at 5998 and then 5930

ICICI Bank closed below hrly support 989 and next hrly support at 954
 
#6
Hi Anup,
The question is not about margin but my personality prefers a no prediction mentality. I don't know how far the price moves above my call price and where to exit but i know from the past price action where support is there and writing put i can gain from time decay(before market decides to go up/sideways) and an extra support in case market reacts against my position and i also write puts only on stocks(if i write them!) i love to buy if they are available at a deep discount.
 

rkkarnani

Well-Known Member
#7
Thanks bro, for your explanation.. My question is why not go for buying naked call option instead of writing puts?..The margin required to buy naked call option will be lesser than the margin required for writing put..
Call options and Put options for Stocks are costlier than their 'fair' price and this is what an Option Seller exploits. The mismatch between fair value and actual value at which options are available is more prominent in Stocks than in Indices. Stock options also have a BIG spread. If one can manage to SELL option at good price, it is better than "buying" them.
Though my query to drwriter would be : Why write only "PUTS?"
Though you said : Fear has a limit, greed has none ! And I totally agree to it. In this statement you seems to take into account the people who are 'bullish' in the market !
What about the greed and fear of people who are "Short" in the market??
Please dont take it as an argument ! And more importantly do note that I am not much in the know about Options.
 
#8
Hi rkkarnani,
You make more money in short covering process rather than shorting the market.Selling will never be instant it takes time and then intensifies as everyone finds the market going down.This is where greedy sellers enter into the market and creates fear among buyers which causes Implied volatilities to spike and create opportunities for option writers.These greedy sellers have to cover their positions and unwilling to lose even a small amount of their profit which causes sharp short covering rallies.

So you make money by writing puts at those areas as you got protection on downside with big premiums and don't need to lose sleep everyday by shorting market with a fear of short covering rally.
 

rkkarnani

Well-Known Member
#9
Hi rkkarnani,
You make more money in short covering process rather than shorting the market.Selling will never be instant it takes time and then intensifies as everyone finds the market going down.This is where greedy sellers enter into the market and creates fear among buyers which causes Implied volatilities to spike and create opportunities for option writers.These greedy sellers have to cover their positions and unwilling to lose even a small amount of their profit which causes sharp short covering rallies.

So you make money by writing puts at those areas as you got protection on downside with big premiums and don't need to lose sleep everyday by shorting market with a fear of short covering rally.
Thanks !
Hmmm!! Seems a valid argument. Dont know much about it as never focused on these things.
Thinking aloud :
Aren't there "profit booking" declines too? Maybe the 'declines' aren't that sharp......
 
#10
Thanks !
Hmmm!! Seems a valid argument. Dont know much about it as never focused on these things.
Thinking aloud :
Aren't there "profit booking" declines too? Maybe the 'declines' aren't that sharp......
Hi rkkarnani,
There will be "profit booking" declines and these declines will be slow and takes time to break hourly supports which causes Put premiums to erode in the process.This is where real money will be made by sitting tight.
 

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