Hi friends
Naked option traders loose money,almost always.
In the beginning it is the option that is naked(just a call bought),later it makes the trader who bought it naked.
why so?
option buyers buiy icecream,but never get chance to eat it.
you bought a call. next 5 days market went down.
the value of your call evaporates superfast.
It is like the seller sold you ice cream but only he will eat it at the end,you wont be allowed to touch it even-of course you can see it from a distance.
still Want icecream?
The way out is buy a pair say buy a call, buy a put.
Now you have a net value that is preserved and the value remains constant.
what advantage?
automatic risk control. your capital is preserved and risk minimised.
if mkt crashed,put shoots up as call falls down,but your net value of position remains nearly same.you wont go naked.
VALUE GETS LOCKED when you buy hedged option position.
For example ,Today nifty is 5810 say
buy a call of 5600 and buy a put of 6000.
Now what you need to do is measure the difference in value of call and put.
this is called spread.
there is a minimum & maximum for this value.
call and put premiums come close with minimal gap and go wide with max gap.
buy at min gap and sell at max gap.
we cant do it perfectly. but by observing past behavious on chart,you can find the value of spread,min,max.
Advantage is min loss,limited gain,reduced capital evaporation.
About how to manage this call & put combination position, i need some clever or intelligent hints from option experts.
problems
option data not readily available.
option charting is difficuylt to have.
most broker do not have option data in their servers more than 3 day or so.
thanks for help
Naked option traders loose money,almost always.
In the beginning it is the option that is naked(just a call bought),later it makes the trader who bought it naked.
why so?
option buyers buiy icecream,but never get chance to eat it.
you bought a call. next 5 days market went down.
the value of your call evaporates superfast.
It is like the seller sold you ice cream but only he will eat it at the end,you wont be allowed to touch it even-of course you can see it from a distance.
still Want icecream?
The way out is buy a pair say buy a call, buy a put.
Now you have a net value that is preserved and the value remains constant.
what advantage?
automatic risk control. your capital is preserved and risk minimised.
if mkt crashed,put shoots up as call falls down,but your net value of position remains nearly same.you wont go naked.
VALUE GETS LOCKED when you buy hedged option position.
For example ,Today nifty is 5810 say
buy a call of 5600 and buy a put of 6000.
Now what you need to do is measure the difference in value of call and put.
this is called spread.
there is a minimum & maximum for this value.
call and put premiums come close with minimal gap and go wide with max gap.
buy at min gap and sell at max gap.
we cant do it perfectly. but by observing past behavious on chart,you can find the value of spread,min,max.
Advantage is min loss,limited gain,reduced capital evaporation.
About how to manage this call & put combination position, i need some clever or intelligent hints from option experts.
problems
option data not readily available.
option charting is difficuylt to have.
most broker do not have option data in their servers more than 3 day or so.
thanks for help
