Put option writing

[comm4300]

friends...
IMO..its better to avoid just shorting options without any hedge.

I read somewhere in TJ itself...if you are writing options you earn like hen and when you lose....you will lose like an elephant going to toilet..

I have experienced it myself. So I want to warn people who want to short options.
Don't go for just shorting options in Calls or Puts...instead you can build a strategy using options..
Options shorting looks like a lucrative income generation strategy..but it will never work...believe me i have survived doing this for more than a year but when i lost it erased all my profits...im lucky that i saved my capital :thumb:

Edit :- Writing options looks like very easy method to earn money....but its not. Its the riskiest thing to do in stock market. Always see risk and reward when you trade.

agreed. But dwriter brings forth a logical argument of using indicators to decide when is the best time to write.

and further more, he has "plan b" in case things go bad. i.e of rolling forward.

 

[ananths]

agreed. But dwriter brings forth a logical argument of using indicators to decide when is the best time to write.

and further more, he has "plan b" in case things go bad. i.e of rolling forward.

If one is successful in Options writing..that is great. But please note that in stock market there is no easy money.
What I feel is if a person is very experienced in stock market and great ability to analyse the market movements like how drwriter has explained, then its ok to short options.
I dont think plan b in this case would work..rolling over. it needs lot of courage. If you are short on some option and it becomes ITM would you be able to roll over without any sentiment?

 

[drwriter]

If one is successful in Options writing..that is great. But please note that in stock market there is no easy money.
What I feel is if a person is very experienced in stock market and great ability to analyse the market movements like how drwriter has explained, then its ok to short options.
I dont think plan b in this case would work..rolling over. it needs lot of courage. If you are short on some option and it becomes ITM would you be able to roll over without any sentiment?

Hi Ananths,
Your concern is pretty common if we don't know what to do when the inevitable happens.
I will explain briefly with one of my current trading position ICICI bank.I wrote ICICI 920 PE @ 44 around a week back. Currently ICICI trading around 965 with put price at 12.Let's assume in the next two days ICICI goes down sharply to 800 and my put goes deep ITM at 120-130. I would rollover for 920 PE November expiry with a premium of around 140-150 and still don't have any loss, but with a gain of around 20.If it goes further down i prefer to own ICICI bank at those prices at expiry and write call option later on them.

But i do accept rollover will be a long drawn process for stocks if they go down substantially and i don't write options in down trending market as i do use technical indicators.There is no easy money but be prepared for most events and manage other events out of our control with a proper put risk premiums. This is the way one can manage any insurance business.

 

[drwriter]

ICICI bank at resistance 989 and Reliance at 892 on hourly closing basis.

 

[gkpc]

Oh, don't be so serious about it... you can have your clothes on while you write 'em

Me in the same boat as any nnovice !
Thats true friend, my clothes will be on while I write them and when they are assigned the same clothes will be "off" !
Jokes apart, I too am just like rkk and many others not yet mentally prepared for writing Options !

 

[jamit_05]

writing put on index is ok. But what about writing puts on stocks...any event...for example stock like satyam...which plunged in a short period of time defying all the indicators (macd, rsi etc) to the oversold extremes.....

won't such event take away what you managed to make over a period of time...


i prefer spreads...just curious to know...how u manage naked

Yes. True trader with a long-term survival plan will be risk conscious. And a risk conscious trader will opt for spreads.

 

[smartcat]

Since you are using technicals, you should try to make money both sides. If you are getting bullish signals, write put options. And if you are getting bearish signals, write call options. This way, you will have positions all the time, and hence your earnings could increase.

Also, choose stocks that have liquidity across many strikes (and not just ATM or just OTM strikes). This way, when the underlying moves rapidly (either UP or DOWN), you will still be able to exit your positions, without paying too much for the spread.

And oh, always use limit orders when you are trading stock options.

 

[drwriter]

Since you are using technicals, you should try to make money both sides. If you are getting bullish signals, write put options. And if you are getting bearish signals, write call options. This way, you will have positions all the time, and hence your earnings could increase.

Also, choose stocks that have liquidity across many strikes (and not just ATM or just OTM strikes). This way, when the underlying moves rapidly (either UP or DOWN), you will still be able to exit your positions, without paying too much for the spread.

And oh, always use limit orders when you are trading stock options.

Hi smartcat,
I don't want to write call options for the sake of to be in the market all the time. I am not betting on rapid movement in any direction, but i prefer my put strike to get hit so that i can write more puts if technicals favour long positions. Liquidity alone cannot be reason to chose strikes as it simply dries up when market favors to your side and you end up paying too much on spread.

I will write puts only on those stocks which i want to own if my strikes get hit..else i don't write puts on any stocks i don't want to own even there is liquidity.

 

[rkkarnani]

The only Options I sell are Reliance and SBI. I hold 500 Reliance and 130 SBI, which are equivalent to 2 lots and 1 lot in Future.
On an average, I Sell deep OTM calls in both counters and on an average have gained ~ Rs.80/- in Reliance per annum and ~ Rs.210/ in SBI. These are my Very Long Term Holdings. I consider this as an Extra Undeclared Dividend from the companies !

 

[rh6996]

The only Options I sell are Reliance and SBI. I hold 500 Reliance and 130 SBI, which are equivalent to 2 lots and 1 lot in Future.
On an average, I Sell deep OTM calls in both counters and on an average have gained ~ Rs.80/- in Reliance per annum and ~ Rs.210/ in SBI. These are my Very Long Term Holdings. I consider this as an Extra Undeclared Dividend from the companies !

I seem to have "lost" the article you had sent me a few months back about "Selling Options" when holding stocks. If its handy, send it again please.