Selling out of money options for a living

S

sjerry4u

Member
#1
#1
I was curious about what is probability of loss if you write an option (either call or put). I've tried to do some analysis which shows interesting results. Complete rational of the thing and a downloadable excel tool on my blog
I calculated using current actual values the probability of loss (as of 2nd Oct) if we sale the out of money put and call options expiring 31st Oct

and here's the summary tables
Out of money call options (Current nifty 7945.55 Current India VIX 13 )-
strikePrice_____ premium_____ LossProbability
7950_____126.3_____32.34%
8000_____ 99.8_____29.44%
8050_____ 77.3_____ 26.20%
8100_____ 58_____ 22.82%
8150_____ 42_____ 19.38%
8200_____ 30_____ 15.94%
8250_____ 19.95_____ 12.77%
8300_____ 13.95_____ 9.83%
8350_____ 9.25_____ 7.35%
8400_____ 5.95_____ 5.33%
8450_____ 3.95_____ 3.74%
8500_____ 2.75_____ 2.54%
8550_____ 3.95_____ 1.65%
8600_____ 1.2 _____ 1.08%
8650_____ 1.7_____ 0.67%
8700_____ 1 _____ 0.40%
8750_____ 2 _____ 0.24%
8800_____ 0.75 _____ 0.14%

Similar analysis for done for put options in a excel file which updates these values every minute from nse and moneycontrol website.

By looking at the numbers. It looks like a very attractive to sell out of money options. But can experts please critically review my rational and comment from practical experience?
 
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T

tradedatrend

Well-Known Member
#2
#2
when you are a option writer, then this "LOSS PROBABILITY" column shall become your "MAXIMUM PROFIT PROBABILITY" column

A. selling 200 point above call and 200 point below put could fetch some respectable amount considering the capital employed but it would highly dicey and never-recommendable (specially for static traders, who want to trade and check balance at expiry),

B. selling 400 point above and below C/P, won't fetch much amount and chances are 2/4 months out of 12 months you could be in deep trouble

C. selling 300 points above and below C/P, would fall between point A & B

BTW standard deviation mentioned at your site, looks good only when you dont have any trade, once you are in, specially uncovered, market is ready to screw you badly

And your percentage column doesn't seems OK to me, may be it has more to do with your standards deviation
 
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L

long_gamma

New Member
#3
#3
Selling out-of-the money Options for a living (regularly) may be a very risky strategy irrespective of what the calculations show.

this strategy has been compared to 'picking nickels in front of a steam roller' or to 'taking a nap on a railway track'.
 
A

amit44

Active Member
#4
#4
sjerry4u said:
I was curious about what is probability of loss if you write an option (either call or put). I've tried to do some analysis which shows interesting results. Complete rational of the thing and a downloadable excel tool on my blog
I calculated using current actual values the probability of loss (as of 2nd Oct) if we sale the out of money put and call options expiring 31st Oct

and here's the summary tables
Out of money call options (Current nifty 7945.55 Current India VIX 13 )-
strikePrice_____ premium_____ LossProbability
7950_____126.3_____32.34%
8000_____ 99.8_____29.44%
8050_____ 77.3_____ 26.20%
8100_____ 58_____ 22.82%
8150_____ 42_____ 19.38%
8200_____ 30_____ 15.94%
8250_____ 19.95_____ 12.77%
8300_____ 13.95_____ 9.83%
8350_____ 9.25_____ 7.35%
8400_____ 5.95_____ 5.33%
8450_____ 3.95_____ 3.74%
8500_____ 2.75_____ 2.54%
8550_____ 3.95_____ 1.65%
8600_____ 1.2 _____ 1.08%
8650_____ 1.7_____ 0.67%
8700_____ 1 _____ 0.40%
8750_____ 2 _____ 0.24%
8800_____ 0.75 _____ 0.14%

Similar analysis for done for put options in a excel file which updates these values every minute from nse and moneycontrol website.

By looking at the numbers. It looks like a very attractive to sell out of money options. But can experts please critically review my rational and comment from practical experience?
Click to expand...

If it is hedged with further OTM options, then it is ok. Otherwise very risky.
 
A

amit44

Active Member
#6
#6
It will minimize the loss lf adjusted properly you can bring the strategy in profit or into very small loss. There is No free lunch. You if want reward, you have to take risk
 
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