So anybody is actually in profits just trading Options

[iyerboi]

personal opinion - Options is like a double edged sword. have some discipline and ud always be successful.

 

[prst]

but due to the fact that future value moves purely in line with the price, one has to be quick to enter and exit out of positions.
where as in options, the value moves a bit slowly, especially in out of money options.

 

[DanPickUp]

Hi

Some question I was asked and I like to present them here:

What I grasped was, the value of option depends on three factors:

1. price of underlying

2. time remaining for expiry. the more the time remaining, its better for the buyer, hoping for price of underlying to move in his direction.

3. implied volatitily and open interest : the higher the OI , its better for the buyer.

4 Should we consider buying an option , whose OI is high ?

5 how do we find the implied volatility ? is it same as OI?

6 should we consider alpha, beta and gamma also while buying option?

7 i guess writing options is more profitable and easier to trade then buying options,but it seems riskier.

8 is it safer then buying/selling futures?

please try to answer my queires/doubts when you are free.
hope am not disturbing you.

My answers:

1. Yes

2. Depends:

otm with low implide vola = Low time decay and otm with high implide vola high time decay
atm with low implied vola = High time decay
itm with low implied vola = Low time decay

That said, you even can be right in direction and as vola maybe starts to decrase, you not will make any money.

3. There is no connection between Implied volatility and open interest.

4 Yes. Open Interest gives me an idea about if there are buyers and sellers on a specific strike level. If there is no open interest on a specific strike level I will have problems to trade options on that strike as there are no buyers and sellers.

5. OI and IMV are two very different things. OI see point 4.

Implied volatility can give us a signal, that the market particpants expect some thing to happen in the near future in the market. If they pay suddenly higher prices for certain strike levels, even market did not move, depending if it was on the call or put side, they expect market to move up ( call side ) or expect market to fall ( put side ).

Example: Big economic numbers are coming the next day. Some will buy calls because they expect market to move up and so they are willing to pay higher prices for the same strike at the moment and vice versa for the put side. If the price of a call on a certain strike levels gets more expensive with out any market move, the implied volatility in this call starts to change. In this case up.

6 No

7 No. It all depends on knowledge and experience. There is no easier.

8 Yes and No. Depends again on knowledge and experience.

DanPickUp

 

[theartofweb]

I found that out of the money callc/puts has more time decay than in the money...may be its ok if u are just an intrday trader. But just cannot hold positions overnight as next morning u will find the premium depreciated 10-15 %.

That is not necessary true as the option value depends on its moneyness as well. If the underlying is ralling the very next days, an OTM option will increase in value as its delta changes.

 

[theartofweb]

would be helpful if seniors enlighten me on the funda of strike price selection.
for example, if i current price of my security is 19 and i buy put option of strike price 17.5. now price of my security has stayed at same price for 2 days and reduced to 18.95 on third day. how does it affect the value of my options?
hoping a useful discussion on this ..

Well, you may also sell a call option strike 19 and buy a call option strike 20 and see what happens if price of your security has stays at same price for 2 days and reduces to 18.95 on third day.

I would like to hear from seniors as well

 

[DanPickUp]

He guys

Every thing you asked is answered.

- Your security or underlying is at spot 19.00. If not, clear that now.

- You do not give any information which expiry you talk, so 21 of January is the date and if you want an other date, clear that now.

- You talk about an option from the 17.5 strike level. If not, then you talk about an option price from an option we do not have an idea of what strike level. Clear that now

- You do not give any idea about what volatility you talk about, so 25 is token. If it is an other volatility, clear that now.

- You then talk about that the market or underlying stays for tow days around the same spot price. 18.95 and if not, clear that now.

Now analyze this post :

http://www.traderji.com/options/399...rofits-just-trading-options-9.html#post626767

and that's it.

 

[Jeareh]

I believe that one should not trade options if u dont have a atleast a basic understanding of the greeks...and how they contribute to the calculation of option premium...

I tried strategies like strangles which is a volatility strategy...but even though the matket moved 100 points...but the options prices didnt change much in my favour.

Just want to know whether anyone here successfully trades strategies like Strangles and butterflies.

Do post your experiences...

HI,

I have been following option strangle strategy during the past months and have 75% success rate. As advised by the seniors I never buy or hold near expiry and cautious during low volatile time. I set profit target of 10% in each trade from 6 trades per month. Having good appreciation in capital. Never been greedy.

I started following this strategy after so many paper trades, which had 80% success rate. The main trick is call & Put should always be at OTM from buy to sell. Never hold when it crosses its OTM border.

Happy Trading.

 

[prst]

Hi

Some question I was asked and I like to present them here:

What I grasped was, the value of option depends on three factors:

1. price of underlying

2. time remaining for expiry. the more the time remaining, its better for the buyer, hoping for price of underlying to move in his direction.

3. implied volatitily and open interest : the higher the OI , its better for the buyer.

4 Should we consider buying an option , whose OI is high ?

5 how do we find the implied volatility ? is it same as OI?

6 should we consider alpha, beta and gamma also while buying option?

7 i guess writing options is more profitable and easier to trade then buying options,but it seems riskier.

8 is it safer then buying/selling futures?

please try to answer my queires/doubts when you are free.
hope am not disturbing you.

My answers:

1. Yes

2. Depends:

otm with low implide vola = Low time decay and otm with high implide vola high time decay
atm with low implied vola = High time decay
itm with low implied vola = Low time decay

That said, you even can be right in direction and as vola maybe starts to decrase, you not will make any money.

3. There is no connection between Implied volatility and open interest.

4 Yes. Open Interest gives me an idea about if there are buyers and sellers on a specific strike level. If there is no open interest on a specific strike level I will have problems to trade options on that strike as there are no buyers and sellers.

5. OI and IMV are two very different things. OI see point 4.

Implied volatility can give us a signal, that the market particpants expect some thing to happen in the near future in the market. If they pay suddenly higher prices for certain strike levels, even market did not move, depending if it was on the call or put side, they expect market to move up ( call side ) or expect market to fall ( put side ).

Example: Big economic numbers are coming the next day. Some will buy calls because they expect market to move up and so they are willing to pay higher prices for the same strike at the moment and vice versa for the put side. If the price of a call on a certain strike levels gets more expensive with out any market move, the implied volatility in this call starts to change. In this case up.

6 No

7 No. It all depends on knowledge and experience. There is no easier.

8 Yes and No. Depends again on knowledge and experience.

DanPickUp

Thanks a lot Dan..
that is helpful..

 

[Jeareh]

Hi,

Sorry for the delayed reply.

Trade in options needs luck, time and dicipline. I have set of rules (conditions to buy & sell) for this strategy and strickly following it, after many paper trades. Please do not ask for the rules.

1. I buy on any normal days when my condition gets satisfied before expiry.
2. Low call & put ratio is one of the precondition to buy (strangle is poor man's straddle).
3. We have around 22 trading days a month. Out of this around 7 trading days falls after 20th date. Balance we have around 15 days. These days are important. Because things like RBI announcements, inflation figures, FII, IIP etc., carried on these days. Which will take market from north to south or south to north. We can expect implied volatility to change significantly during these days.

Overal, rules of the game is important to play at any condition.

Happy trading.

 

[prst]

Hi,

Sorry for the delayed reply.

Trade in options needs luck, time and dicipline. I have set of rules (conditions to buy & sell) for this strategy and strickly following it, after many paper trades. Please do not ask for the rules.

1. I buy on any normal days when my condition gets satisfied before expiry.
2. Low call & put ratio is one of the precondition to buy (strangle is poor man's straddle).
3. We have around 22 trading days a month. Out of this around 7 trading days falls after 20th date. Balance we have around 15 days. These days are important. Because things like RBI announcements, inflation figures, FII, IIP etc., carried on these days. Which will take market from north to south or south to north. We can expect implied volatility to change significantly during these days.

Overal, rules of the game is important to play at any condition.

Happy trading.

can you elaborate a bit more on the put/call ration?
do u buy or write options?