Trading Nifty Options?
- Thread starter rahulsarna
- Start date
- Tags f&o intraday options trading
Tnsn2345, when i was trying to define "naked position", simliar thoughts also came to my mind (i.e. Buy option is naked position). With time, I have almost taken this term for-granted in my system and forgot the theoratical definition of it, hence had to search bit of litrature as well. So what I wrote is mix of theory as well as my experience too.
imo, what u have written is true in normal market conditions. And I agree with you that Buy option position, can turn into naked trade because of psychological reason. It is not because of the options pricing behaviour.
But majority of traders blow their account in abnormal situation i.e. mkt is locked on limit or other black swan events. I am sure you will agree that if nifty has to lock tomorrow lower filter of -15% (900 points drop) then even with 50 qty of short put, the loss will be 50*900 = 45k which is more then account size.
(same situation has happend on bullish side when our market hit upper circuit in May-2009 and short calls were killed. Except this +1 instance, we have lot more such -ive incidence in history)
Broker will certainly close the position, if they could otherwise they will request for margin and possibly close it on whenever they can (may be on following day when mkt has crashed 5/10 %). Here the option writer's liability is not just limited to the size of trading acct but growing beyond that and hitting the saving account /personal wealth now.
There is no psychological reasoning here but pure reality of option pricing is enough to kill the trader. If you bring in pschological aspects then probably trader will meet the margin and hold onto to position expecting a bounce to cut the loss.
One might say that in such case, don't pay the margin and don't pickup the call from broker. and still limit max loss to 30k. Don't know if this will turn into criminal case/ black mark on credit rating etc in India but in western world, it will certainly have -ive impact on rest of the financial future of trader.
For above reasons, I still think, naked position = uncovered short option position. Ofcourse if one is rich enough, then short option position can be covered by cash. i.e. the trader is ready to bring in VERY HIGH to ANY amount of cash to meet his obligation. In that case, for that trader, all positions are fully covered.
Buy option position can not hurt us beyond our trading account hence I classify them in safer category.
happy options trading
imo, what u have written is true in normal market conditions. And I agree with you that Buy option position, can turn into naked trade because of psychological reason. It is not because of the options pricing behaviour.
But majority of traders blow their account in abnormal situation i.e. mkt is locked on limit or other black swan events. I am sure you will agree that if nifty has to lock tomorrow lower filter of -15% (900 points drop) then even with 50 qty of short put, the loss will be 50*900 = 45k which is more then account size.
(same situation has happend on bullish side when our market hit upper circuit in May-2009 and short calls were killed. Except this +1 instance, we have lot more such -ive incidence in history)
Broker will certainly close the position, if they could otherwise they will request for margin and possibly close it on whenever they can (may be on following day when mkt has crashed 5/10 %). Here the option writer's liability is not just limited to the size of trading acct but growing beyond that and hitting the saving account /personal wealth now.
There is no psychological reasoning here but pure reality of option pricing is enough to kill the trader. If you bring in pschological aspects then probably trader will meet the margin and hold onto to position expecting a bounce to cut the loss.
One might say that in such case, don't pay the margin and don't pickup the call from broker. and still limit max loss to 30k. Don't know if this will turn into criminal case/ black mark on credit rating etc in India but in western world, it will certainly have -ive impact on rest of the financial future of trader.
For above reasons, I still think, naked position = uncovered short option position. Ofcourse if one is rich enough, then short option position can be covered by cash. i.e. the trader is ready to bring in VERY HIGH to ANY amount of cash to meet his obligation. In that case, for that trader, all positions are fully covered.
Buy option position can not hurt us beyond our trading account hence I classify them in safer category.
happy options trading
Dear Aw,
I will give an analogy which may seem out of context but actually it isn't.
If there are riots in the city, I will not send my child to school the next day.
On Diwali night, I will close all doors and windows.
On the Holi, I will step out for my office post lunch.
Or during monsoon, I will not even stop at my favourite 'pani puri' kiosk.
On the same lines, when I know there is a large likelihood of something adverse happening due to the sentiments / perceptions / reality in the environment, I am taking all precautions. Not otherwise.
So....
If there are riots in the city, I will not send my child to school the next day. - My child goes to school on all other days.
On Diwali night, I will close all doors and windows. - They are otherwise open on other festivals.
On the Holi, I will step out for my office post lunch. - I go out every morning on other days.
Or during monsoon, I will not even stop at my favourite 'pani puri' kiosk. - I hang out regularly during other seasons.
So for all the 'predictable' black swan events, it is foolish to write Options, but if you live life fearing black swan event to happen 'every day' and hence not write Options, then we should also plan our every day assuming it is our last day to live. Which we don't. Death is inevitable (the ultimate Black Swan event) but we still live life in it's denial, we make plan for the day, for the week, and a vacation a few months in the future. Totally oblivious of the fact that we may not get up from the sleep tomorrow.
So if you ask me would I write Options if I knew tomorrow is the election result day, I will say - No. If there is rising tension with our neighbour and a threat of a war - No. But if there is none of this sort, then - Yes.
But then there could be some unpredicatble black swan events, viz a massive earthquake the country, a 9/11 kind of event etc. If I stop writing Options for this reason, then I should also plan and live my each day like it is the last one for me, which I don't. All of us don't !
To die it takes one second, but to come out alive it take nine months. Meaning, the markets can crash at any news and keep going down (hit lower circuits), but markets will not rise abruptly (hitting circuit filters) and keep rising at a breakout of good news - a good news which is not predictable in nature (election results day markets are predictable - will most likely result in a good or bad outcome). So with context to my above real life examples, I will not put my head on the block by writing naked written Options on such predictable day.
So with the above thoughts, if you still think writing Options is risky then don't write atleast the naked Put Options, but why not writing naked Calls, why crucify this opportunity.
Regards,
I will give an analogy which may seem out of context but actually it isn't.
If there are riots in the city, I will not send my child to school the next day.
On Diwali night, I will close all doors and windows.
On the Holi, I will step out for my office post lunch.
Or during monsoon, I will not even stop at my favourite 'pani puri' kiosk.
On the same lines, when I know there is a large likelihood of something adverse happening due to the sentiments / perceptions / reality in the environment, I am taking all precautions. Not otherwise.
So....
If there are riots in the city, I will not send my child to school the next day. - My child goes to school on all other days.
On Diwali night, I will close all doors and windows. - They are otherwise open on other festivals.
On the Holi, I will step out for my office post lunch. - I go out every morning on other days.
Or during monsoon, I will not even stop at my favourite 'pani puri' kiosk. - I hang out regularly during other seasons.
So for all the 'predictable' black swan events, it is foolish to write Options, but if you live life fearing black swan event to happen 'every day' and hence not write Options, then we should also plan our every day assuming it is our last day to live. Which we don't. Death is inevitable (the ultimate Black Swan event) but we still live life in it's denial, we make plan for the day, for the week, and a vacation a few months in the future. Totally oblivious of the fact that we may not get up from the sleep tomorrow.
So if you ask me would I write Options if I knew tomorrow is the election result day, I will say - No. If there is rising tension with our neighbour and a threat of a war - No. But if there is none of this sort, then - Yes.
But then there could be some unpredicatble black swan events, viz a massive earthquake the country, a 9/11 kind of event etc. If I stop writing Options for this reason, then I should also plan and live my each day like it is the last one for me, which I don't. All of us don't !
To die it takes one second, but to come out alive it take nine months. Meaning, the markets can crash at any news and keep going down (hit lower circuits), but markets will not rise abruptly (hitting circuit filters) and keep rising at a breakout of good news - a good news which is not predictable in nature (election results day markets are predictable - will most likely result in a good or bad outcome). So with context to my above real life examples, I will not put my head on the block by writing naked written Options on such predictable day.
So with the above thoughts, if you still think writing Options is risky then don't write atleast the naked Put Options, but why not writing naked Calls, why crucify this opportunity.
Regards,
Last edited:
Tnsn2345. Our discussion is taking the beginners definition of "naked option" to lot more advance levels by bringing many practical situations.
I do agree with your views, and never say that one must not write naked put/call options. I also agree that naked short call is comparatively less risky than naked short put. I also agree that there are times when probably short put is safe strategy and there are time when one must avoid such risky positions.
Bottomline is , to understand the implications of what one is doing and use appropriate strategy suitable to that particular market condition. Who am I to tell someone about the degree of risk that they shd take or not take.
Certainly, we can't live our life trying to plan for black swan events, but we do respond to changing environement as far as we can so that we don't end up like bear stern or lehman. When we walk, drive, eat, interact with people - we do take mitigation action like watching the incoming trafic, avoiding to eat and non-hygenic places, not taking punga with Daud ibrahim's man etc. To me, Living with risk is part of life, but most important is to manage the risk. I might be great in managing the risk in certain parts of my life, but as I entered new areana (like starting new sport, moving to new country etc), I prefer to start conservatively and put more barriers and gradually release some as I get more comfortable. But that's me. Others do have their own approach and that is fine too.
Happy Trading.
I do agree with your views, and never say that one must not write naked put/call options. I also agree that naked short call is comparatively less risky than naked short put. I also agree that there are times when probably short put is safe strategy and there are time when one must avoid such risky positions.
Bottomline is , to understand the implications of what one is doing and use appropriate strategy suitable to that particular market condition. Who am I to tell someone about the degree of risk that they shd take or not take.
Certainly, we can't live our life trying to plan for black swan events, but we do respond to changing environement as far as we can so that we don't end up like bear stern or lehman. When we walk, drive, eat, interact with people - we do take mitigation action like watching the incoming trafic, avoiding to eat and non-hygenic places, not taking punga with Daud ibrahim's man etc. To me, Living with risk is part of life, but most important is to manage the risk. I might be great in managing the risk in certain parts of my life, but as I entered new areana (like starting new sport, moving to new country etc), I prefer to start conservatively and put more barriers and gradually release some as I get more comfortable. But that's me. Others do have their own approach and that is fine too.
Happy Trading.
Yes my friend AW, sometimes we do not realise how far we have walked together talking over something which is very core to our heart. Didn't even realise, what the initiator of this thread is thinking, learning from all this. Indeed, we got away too far.
Thank you for sharing your thoughts and inputs. I hope other readers may also benefit as I have discussing this with you.
Dear Dan,
Once again I fear I have brushed you on the wrong side. And like always, I don't know how and why. You insisting me giving my trades some how doesn't blend into my thinking.
I can't show my trades because simply I don't need to. There are somethings which traders need to work out for themselves. I can just give ideas which can help traders build something worthwhile and sustainable model for them. And this is more important than my trades, which may be small strips of band-aids, ineffective for deep wounds or a chronic ailment.
I did not have these ideas so ended up paying higher 'fees' to the market, atleast with we all discussing ideas, readers may get 'discount' on the 'fees' which in any which case they have to pay to the market.
At best I can comment and give critical and constructive feedback on any specific setups of traders and how to manage them, if they think I am good at this job. This way atleast traders will start thinking and learn how to do it themselves which is very important and long lasting.
And yes, your 'Thank You' does matter for me. Please do press it, if you have liked the thoughts in my posts (forget everything else).
Have a great sunday guys.
Regards,
Thank you for sharing your thoughts and inputs. I hope other readers may also benefit as I have discussing this with you.
Dear Dan,
Once again I fear I have brushed you on the wrong side. And like always, I don't know how and why. You insisting me giving my trades some how doesn't blend into my thinking.
I can't show my trades because simply I don't need to. There are somethings which traders need to work out for themselves. I can just give ideas which can help traders build something worthwhile and sustainable model for them. And this is more important than my trades, which may be small strips of band-aids, ineffective for deep wounds or a chronic ailment.
I did not have these ideas so ended up paying higher 'fees' to the market, atleast with we all discussing ideas, readers may get 'discount' on the 'fees' which in any which case they have to pay to the market.
At best I can comment and give critical and constructive feedback on any specific setups of traders and how to manage them, if they think I am good at this job. This way atleast traders will start thinking and learn how to do it themselves which is very important and long lasting.
And yes, your 'Thank You' does matter for me. Please do press it, if you have liked the thoughts in my posts (forget everything else).
Have a great sunday guys.
Regards,
Writing options !
http://www.traderji.com/options/305...g-strategy-option-spreads-116.html#post459952
http://www.traderji.com/options/305...g-strategy-option-spreads-121.html#post478132
Have a nice weekend
DanPickUp
http://www.traderji.com/options/305...g-strategy-option-spreads-116.html#post459952
http://www.traderji.com/options/305...g-strategy-option-spreads-121.html#post478132
Have a nice weekend
DanPickUp
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