Trading Nifty Options?

[rahulsarna]

??????
ny1 plzz reply to my quarries :|

 

[sumeetsj]

and one more question what is - "Naked Option " ??
please explain giving an example

Naked option buying means buying only a call or buying only a put.
Buying option in a strategy means buying and/or selling a combination of calls and puts. You can also add futures to make trades more profitable. Personally i suggest you read about factors like time decay and stuff before getting into options trading. This is one thing you dont want to overlook.

Try to learn things from such threads before starting actual trading.

http://www.traderji.com/options/30597-low-risk-options-trading-strategy-option-spreads.html

 

[rahulsarna]

My broker's website says this - "To take the buy/sell position on index/stock options, you have to place certain % of order value as margin. "

This means that i cannot start trading with rupee 2500 , if i want to buy a nifty lot of 50 with A PE at rs 50 ????

How much do i need to start trading and what is this margin requirement ?

 

[tnsn2345]

Hi tnsn2345
(t25 from next time .. and I hope u will not mind as typing full id will be ....)

Can u give some strategies wid Options ... like I've know about the normal straddle, strangle, butterfly etc etc BUT something which you may have developed/heard/experimented etc ..

Dear Murtaza,

You may address me by whatever pleases and is convenient it you ....

Most of the Options strategy are mentioned in books, no need to get into complex set ups, but what is not mentioned in details in the books even with simple strategies, is the Greeks, which are very important for Options strategies.

In Options, you should always have simple setups which are easier to understand and unwind. So practice with simple ones which are given in the books. But a few words if you still want me to tell you what I do when I set up an Options trade...

1) Get the direction right (obviously)
2) Get the speed right (important if the set up has adverse time decay impact)
3) Get the distance right (preferably)
4) Get the strike prices right (very very important to get this thing right, for this you will need to take greeks into account)
5) Get the equation of the set up right (so at all times you know your net greeks of the set up)
6) Have a plan to manage your set up (in favourable and unfavourable circumstances)

For all of the above, you will basically need to have a good Options analysis software, which can give you all the information of the set up at one glance.
Secondly a good charting software which would give you graphic representation of your set up, this would help you in the same was as what a chart of a stock or index does in basic trading.
Thirdly and preferably you should have independent accounts for Options trading and your other trading portfolios, the reason being, a) Options prices (in absolute terms) are very volatile hence if you cannot resist watching your set up now and then, you will be tempted to make changes (adds, reductions, going unhedged, over hedging etc) if you keep on looking at Option prices frequently b) this also affects your performance with other trading portfolios. Hence keep multiple accounts and with different brokers.

Before setting up the strategy, also plan for course correction (very important) and also how and what will you unwind if the direction is happening in your favour. This is essentially nothing but managing your set up, this would call for adding, reducing, going unhedged, over hedging, changing strike prices etc as the time passes and under different circumstances.

Options strategies are very rarely used for intraday kind of setups (unless it is the last week or so to expiry, where intraday setups can also be planned). Option strategies should be for periods of atleast 3 / 4 days, to a week or even larger periods. Hence a proper knowledge of margin requirements is a must (a good Options software should help to track this). Once you are successful with simpler set ups, you can the get into more complex setups involving different months Options.

Overall, it may look complex to trade Options strategies over conventional directional stock / futures trading (long / short) where you just need to get the direction right, but if you sincerely create a system to help you track all of the above mentioned points and if you have patience to allow your set up unfold, you can very easily make living out of Options trading alone. If you have been exposed to Structured Products offered by leading private wealth / financial institutions in India and abroad, they are all primarily built on Options

To conclude,

1) Trade a simple Options strategy, which you can understand. You do not want to prove anything to the world, prove it to yourself. All basic bookish strategies are good enough for all of us in our entire life time, let us not reinvent the wheel (unless you are a hedge fund manager or want to impress a girl , which you still can more easily do by buying her what she loves from the profits generated by trading simple strategies)
2) There is always a Options strategy for any kind of market, only payoffs differ.
3) The Options strategies setups are not static, they have to be managed, until they are unwound.
4) Trading Options strategies does not mean that you have only Options positions, many set up use Futures positions too. So a combination of both Futures and Options positions still constitute trading in Options setups.
5) Without Options software you should not trade Options set ups.
6) For trading Options strategies, you need patience.

Regards,

 

[sumeetsj]

My broker's website says this - "To take the buy/sell position on index/stock options, you have to place certain % of order value as margin. "

This means that i cannot start trading with rupee 2500 , if i want to buy a nifty lot of 50 with A PE at rs 50 ????

How much do i need to start trading and what is this margin requirement ?

1. As your broker for the Span margin excel sheet

2. If u want to buy then u need only money=(premium*lot size)+brokerage.

3. If you want to sell then margin comes into picture.

 

[AW10]

Dear Murtaza,

You may address me by whatever pleases and is convenient it you ....

Most of the Options strategy are mentioned in books, no need to get into complex set ups, but what is not mentioned in details in the books even with simple strategies, is the Greeks, which are very important for Options strategies.

........
........

Great post tnsn2345 for beginner option trader.
If you won't mind then I will put the link to this in my low-risk... options thread.

Happy Trading

 

[tnsn2345]

Great post tnsn2345 for beginner option trader.
If you won't mind then I will put the link to this in my low-risk... options thread.

Happy Trading

Dear AW,

If you feel it can help traders out there, pls do so. Again, it is one thread which I visit quite often. Thanks.

Regards,

 

[AW10]

and one more question what is - "Naked Option " ??
please explain giving an example

In my understanding, Naked position is any position which has potential to get me or my account naked. It can happen only when I am carrying unlimited risk (or very high risk) in terms of my obligation.
While trading options, naked position can come when we have sold the option, and don't have any type of cover (either by holiding underlying security, or by holding another option position) that is limiting our risk.

I classify positions as
Naked position - Unlimited risk, No cover like - short call, short put
Partially covered position - risk is managed to some extent. Beyond certain limit, it is still high risk position. eg. - Long call/put, Covered call (short call, long stock), short strangle or short straddle (short call+short put) etc
Fully covered position - Risk is known precisely, eg - Spreads (short one call+long another call)

IMO, buying option is not naked position cause the risk is limited to the loss of complete premium. This position will not blow your acct.

Hope this helps.
happy option trading.

 

[AW10]

Thanks a lot everyone for your replies

I read somewhere that PE means PUT European , means you cannot sell the option once u have bought it till it expires ??

I am confused about it please tell me the difference b/w PE & PA nd wether i can trade nifty options intraday ?

Regards .

To close your long option position there are 3 choices, first is to sell them in open market or second is to excercise the option.

European options, can not be excercised before the expiry. But you can always sell them in the market before expiry and close your position.

By default, all In-the-money options are excercised by exchange on the day of expiry.

Hope this helps.

Happy trading.

 

[DanPickUp]

""IMO, buying option is not naked position cause the risk is limited to the loss of complete premium. This position will not blow your acct""

Hi AW10

Nice to see you posting a little bit. I agree with you about the beginners comments. Nicely done for a beginner.

Just one improvement there : Books ! The bible of options strategies from Guy Cohen has all, he mentioned books not have. Seems, he not really knows the good books about options and still giving advises about it ??

Guy Cohen s book gives very detailed and easy to understand information's about Income strategies, Vertical Spreads, Volatility strategies, Sideways strategies, Leveraged strategies, Synthetic strategies and on each strategies, the options greeks are shown with pictures on each one of them. There is much more easy stuff to understand quickly an option strategy. Not as complicated as Mc Millans book on options.

An other thing, he not even wrote one word about it is the volatility. How can any body give advises about options and not even mention with a clear word volatility ??

I could go on easily with more critical points, but this is not why I post with you.

I may miss understood your post : If I buy a long naked option, I have a limited risk. I know exactly, how much I can lose on this trade. It is a clear money management. I not even need to have a spread. If you say the same, than I miss interpreted your post and so sorry for that.

If you say, that we need a spread to reduce our risk, I do not agree, for the reasons I mentioned above and what I write now. Even taking a spread, I invest some money I can loose. So I can choose : Losing the same amount with naked options or losing the same amount with spreads. What is the risk reward on each idea ? With spreads, I may take some more positions and my win limit is given and limited. With naked long positions, I may take less potions and my win limit is unlimited in the best case with a clear money management. I even can use stop loss ideas like I can use with spreads.

I agree about not selling naked options, as this is quit dangerous. At least nothing for beginners.

An other advantage of buying naked options is, that my counter part doe's not know, what I plan, if I have a plan. But this is may more for real advanced option strategy traders.

Hope you are well

DanPickUp