Why this behavior ..put option should increase in value and not go down...

#1
Hi Folks
I am new in FNO at NSE. I got a put for some Rs5 . It expires in > 1 month ( Aug 11 put ) . Bought when NIFTY was like 5620. Y'day it traded in the range of Rs 6.3 -5 and y'day the NIFTY was ranging between 5600+ to < 5600.
Today NIFTY is < 5600. So price has gone down but Put value is now DECREASED ? to < Rs 5 . Why so . So much time has not passed to come near expiration to activate time decay.. so why value go down so badly ? bascially I was not aware of the harami commission my broker icici is charging and took this call. Later I realized - Rs90 per lot round trip crazy commission .... total ruin of trade. I want to get at least Rs2 profit to come close to break even . ..... can someone help figure out
 
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PGDIMES

Well-Known Member
#2
Hi Folks
I am new in FNO at NSE. I got a put for some Rs5 . It expires in > 1 month ( Aug 11 put ) . Bought when NIFTY was like 5620. Y'day it traded in the range of Rs 6.3 -5 and y'day the NIFTY was ranging between 5600+ to < 5600.
Today NIFTY is < 5600. So price has gone down but Put value is now DECREASED ? to < Rs 5 . Why so . So much time has not passed to come near expiration to activate time decay.. so why value go down so badly ? bascially I was not aware of the harami commission my broker icici is charging and took this call. Later I realized - Rs90 per lot round trip crazy commission .... total ruin of trade. I want to get at least Rs2 profit to come close to break even . ..... can someone help figure out

Suggest you to read about options first... then trade... it's not as simple as trading stocks or futures... it's a bit mathematical... btw, did you buy 4900 put? If so, sit on it for the rest of the month and pray for 2 bucks profit... or else... sell it at whatever price you are getting... at least the cost of brokerage etc. will come out... better trade next time... happy trading... :)
 
#3
This is what i have observed:

When nifty goes down, all CE goes down

When Nifty Goes up, PE which are above the nifty value goes up while Puts which are below nifty values goes down.

So lets says nifty is at 5500 and it falls. Puts which are at strike price less then 5500 are going down while Puts which are at strike price above 5500 are going up.

All call options below and above 5500 are going down.
 
#4
I understand sir my option knowledge is squat and I took a sudden hunch.
But is this time value decay that is over-riding the option value potential ? can you please explain a bit more ..and point me some places I shd look ( the math part )
Should I be only trading options that are close to ATM range?
 
#5
This is what i have observed:

When nifty goes down, all CE goes down

When Nifty Goes up, PE which are above the nifty value goes up while Puts which are below nifty values goes down.

So lets says nifty is at 5500 and it falls. Puts which are at strike price less then 5500 are going down while Puts which are at strike price above 5500 are going up.

All call options below and above 5500 are going down.
Deepakji thanks for the observation. That was v useful. What intrigued me was the price action of the option. In a matter to 2 days the PE has gone DOWN when the price is falling......I could expect no price change ( status quo ) or slight increase ..maybe the time decay is acting > option prcing.
BTW how can i price the option - NIFTY one .. how do I get the volatility that these formulas need and what forumula works best for NIFTY price calculation...anyone for that.
Ok.. I am ur Vidyarthi..so help me out ..!!!
 

PGDIMES

Well-Known Member
#6
I understand sir my option knowledge is squat and I took a sudden hunch.
But is this time value decay that is over-riding the option value potential ? can you please explain a bit more ..and point me some places I shd look ( the math part )
Should I be only trading options that are close to ATM range?

http://www.traderji.com/options/28384-beginners-way-trade-options-7.html#post344172

http://www.traderji.com/options/30597-low-risk-options-trading-strategy-option-spreads.html
 
#7
THanks a bunch ...Is spreading allowed with Brokers over here. Will brokers like RK Global and Zerodha - allow spreads - that means buy ( which is fine ) and sell ( how is that done ? and at the same time both legs have to be filled ) ....can you please shine some light here or is it there in here you go long on 1 option. After going long on it - based on ur position there u can go short on another one and create a spread - not simultainously but serially. PL do clarify this one
 
#8
Deepakji thanks for the observation. That was v useful. What intrigued me was the price action of the option. In a matter to 2 days the PE has gone DOWN when the price is falling......I could expect no price change ( status quo ) or slight increase ..maybe the time decay is acting > option prcing.
BTW how can i price the option - NIFTY one .. how do I get the volatility that these formulas need and what forumula works best for NIFTY price calculation...anyone for that.
Ok.. I am ur Vidyarthi..so help me out ..!!!
Brother, which put you took?

In Aug and Sep series, all puts are increasing as nifty is falling.
 
#9
#10
Hi Folks
I am new in FNO at NSE. I got a put for some Rs5 . It expires in > 1 month ( Aug 11 put ) . Bought when NIFTY was like 5620. Y'day it traded in the range of Rs 6.3 -5 and y'day the NIFTY was ranging between 5600+ to < 5600.
Today NIFTY is < 5600. So price has gone down but Put value is now DECREASED ? to < Rs 5 . Why so . So much time has not passed to come near expiration to activate time decay.. so why value go down so badly ? bascially I was not aware of the harami commission my broker icici is charging and took this call. Later I realized - Rs90 per lot round trip crazy commission .... total ruin of trade. I want to get at least Rs2 profit to come close to break even . ..... can someone help figure out
If you see the option chain for Nifty at the NSE website, all Put options from 4900 strike price onwards have increased today in value from yesterday. The 4800 strike price downwards Put options have decreased in value. But then value of 4800 PE August yesterday was only about Rs. 3 and not Rs. 5. While 4900 PE August yesterday was Rs. 4.10, today it has increased to Rs. 4.45 and not decreased as stated. Higher strike price PE of August were of higher value and have all increased today.

These are quite far from the ATM options with spot Nifty being around 5500. The ATM and near ATM (say up to about 300 points away from ATM on both sides) options behave in a mathematical and systematic manner, though there also sometimes prices may go against your expectations due to volatility change, etc. But the mathematical relationship between Call option, Put option and Nifty Future is maintained scrupulously.

However, the quite far from ATM options may sometimes show some abnormal behaviour due to lack of liquidity. Near maturity of options also, some abnormality may be seen. For example, today almost for the whole day, the 5400CE July (that was expiring today) showed about Rs 5 to 6 less value than even its intrinsic value. To illustrate, when the Nifty spot was 5495, the 5400CE July was only about Rs. 89 to 90. It was less than even the Nifty July Future which at that time was about Rs. 5492 or so.

Better option for a novice options trader is first to study the options market, read options related literature, do some paper trades, understand the options mechanism, and then start trading options first with a small number of lots.
 
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