A Beginner's way to trade options.
- Thread starter jamit_05
- Start date
- Tags myvineet options saint smart_trade
Hi all Seniors,
Sorry for intrupting the flow...I would like to knw whether trading options is similar to intraday trading....whether we have to sit in front of the system continously till the end of the trading day or whether we can trade option like swing trading a stock. Kindly provide the info.....
Sorry for intrupting the flow...I would like to knw whether trading options is similar to intraday trading....whether we have to sit in front of the system continously till the end of the trading day or whether we can trade option like swing trading a stock. Kindly provide the info.....
Hy varunkochhar
You wrote :
--------------------------------------------------------------------------------------------------------------------------------------------------------
Good evening S-T sir,
I am a full time business man and hence cannot devote much time to the markets and that is why i play options which does not require u to sit in front of the trading screen all day long.
Any how this is the strategy i employed on the 5th. of Aug when nifty closed above 4700.
I bought a 3800 dec 2009 call @ 950 and bought a 5100 Aug 2009 put @ 422 to set up a trade which can last till the end of the year. Now the capital employed or the premium spent with brokerage is about 1375 x 50 = 68750 or say about 70000.
Now it does not matter to us whether the market goes up or down, but should be volatile enough to either come near 5100 on the upside(i.e 4900 or above) or near 3800 on the downside (i.e 4000 or below) in the next 5 months.
Now if you calculate the diferrence between 5100 and 3800 it comes to 1300 (a minimum return of which we are assured any which way) but we have spent a total premium of 1375 thus first of all we have to recover that 75 points and thus initially 75 x 50 = 3750 is the maximum amount which we can lose in this transaction.
Now that we have calculated our maximum risk we would like to plan to recover this and to get the 2 to 10% per month rate of return.
We wait patiently for nifty to reach 4000 on the downside or 4900 on the upside or about a week before expiry. For the 1 st 2 options we are in no hurry as we have a max of about 5 months.
Now if the nifty were to reach 5100 with more than a week to expiry then surely the aug. 5100 put would trade for more than Rs.100 and perhaps even close to Rs.150 as it would be in the money. If so you could sell this off like a plain vanilla plan and also sell the 3800 dec 2009 call anything above 1300 (5100-3800) in the process thus pocketting more than 1450 premium (1300+ + 150) thus pocketting 75 x 50 =3750 on an investment of 69000 thus netting a return of about 6%.
Or
if nifty were to hit 5100 you could sell the put and buy a 5300 put by paying an extra premium of about 30 to 40 rs. per 100 pts. meaning that if the 5100 put would be at 150 then 5300 put at that time would be around 220-240 range. Thus by paying this 80 rs. extra you would have locked in an additional 200 pts (5300 from 5100) meaning that by spending 1375 + 80 = 1455 you have assured your self of a return of 1500 thus now u are in a profitable trade come what may.To further earn at this point you can also sell the aug 5300 call for whatever premium say Rs.70 to Rs.80 this profit would be over and above your locked in profit of 45 thus increasing your profit to close to 6000+ or nearly 8% of the capital employed.
On first reading all this may appear to be very hypothetical but i assure you that all that is required of the market is to be volatile and a 500 point move either way is something that we have seen in a month on a regular basis.
This post is becoming very long if you are getting a gist of it then only i would be able to rationally explain the other part of the trade.
The only thing i have done to initiate this trade is that i have bought a distant (about 5 or 6 months away) option (it could be either a call or a put)[ with the only criteria that the strike price + premium paid should not be very much more than the current nifty level
(in my case it came to 3800 + 950 = 4750) when the nifty future was about 4705 thus a differrence of about Rs.50 ] and a current month option (opp of the other option) also with the same citeria. (5100 - 425= 4675) a diff. of about 25.
c u later
varun
--------------------------------------------------------------------------------------------------------------------------------------
If you trade like that, I would recommend, that you have to use option strategy analyze software.
You could educate yourself in the field of "Calendar Spreads" or one step higher "Diagonal Calendar Spreads".
Those strategies can be traded in slow motion.
In very, very basic words : You buy Dec call and you sell Sept call. If you do Diagonals the puts would come in the game.
You have your own business and those kind of strategies may fits your situation best.
But like I say, you have to educate your self about that and important, you have to know, how to handle the option greeks.
Good luck
Regards and good trading
You wrote :
--------------------------------------------------------------------------------------------------------------------------------------------------------
Good evening S-T sir,
I am a full time business man and hence cannot devote much time to the markets and that is why i play options which does not require u to sit in front of the trading screen all day long.
Any how this is the strategy i employed on the 5th. of Aug when nifty closed above 4700.
I bought a 3800 dec 2009 call @ 950 and bought a 5100 Aug 2009 put @ 422 to set up a trade which can last till the end of the year. Now the capital employed or the premium spent with brokerage is about 1375 x 50 = 68750 or say about 70000.
Now it does not matter to us whether the market goes up or down, but should be volatile enough to either come near 5100 on the upside(i.e 4900 or above) or near 3800 on the downside (i.e 4000 or below) in the next 5 months.
Now if you calculate the diferrence between 5100 and 3800 it comes to 1300 (a minimum return of which we are assured any which way) but we have spent a total premium of 1375 thus first of all we have to recover that 75 points and thus initially 75 x 50 = 3750 is the maximum amount which we can lose in this transaction.
Now that we have calculated our maximum risk we would like to plan to recover this and to get the 2 to 10% per month rate of return.
We wait patiently for nifty to reach 4000 on the downside or 4900 on the upside or about a week before expiry. For the 1 st 2 options we are in no hurry as we have a max of about 5 months.
Now if the nifty were to reach 5100 with more than a week to expiry then surely the aug. 5100 put would trade for more than Rs.100 and perhaps even close to Rs.150 as it would be in the money. If so you could sell this off like a plain vanilla plan and also sell the 3800 dec 2009 call anything above 1300 (5100-3800) in the process thus pocketting more than 1450 premium (1300+ + 150) thus pocketting 75 x 50 =3750 on an investment of 69000 thus netting a return of about 6%.
Or
if nifty were to hit 5100 you could sell the put and buy a 5300 put by paying an extra premium of about 30 to 40 rs. per 100 pts. meaning that if the 5100 put would be at 150 then 5300 put at that time would be around 220-240 range. Thus by paying this 80 rs. extra you would have locked in an additional 200 pts (5300 from 5100) meaning that by spending 1375 + 80 = 1455 you have assured your self of a return of 1500 thus now u are in a profitable trade come what may.To further earn at this point you can also sell the aug 5300 call for whatever premium say Rs.70 to Rs.80 this profit would be over and above your locked in profit of 45 thus increasing your profit to close to 6000+ or nearly 8% of the capital employed.
On first reading all this may appear to be very hypothetical but i assure you that all that is required of the market is to be volatile and a 500 point move either way is something that we have seen in a month on a regular basis.
This post is becoming very long if you are getting a gist of it then only i would be able to rationally explain the other part of the trade.
The only thing i have done to initiate this trade is that i have bought a distant (about 5 or 6 months away) option (it could be either a call or a put)[ with the only criteria that the strike price + premium paid should not be very much more than the current nifty level
(in my case it came to 3800 + 950 = 4750) when the nifty future was about 4705 thus a differrence of about Rs.50 ] and a current month option (opp of the other option) also with the same citeria. (5100 - 425= 4675) a diff. of about 25.
c u later
varun
--------------------------------------------------------------------------------------------------------------------------------------
If you trade like that, I would recommend, that you have to use option strategy analyze software.
You could educate yourself in the field of "Calendar Spreads" or one step higher "Diagonal Calendar Spreads".
Those strategies can be traded in slow motion.
In very, very basic words : You buy Dec call and you sell Sept call. If you do Diagonals the puts would come in the game.
You have your own business and those kind of strategies may fits your situation best.
But like I say, you have to educate your self about that and important, you have to know, how to handle the option greeks.
Good luck
Regards and good trading
Last edited:
ST or anybody else,
One quick question.
If I have one lot of a call option of a stock and I am in profit, but cant sell it because there is no liquidity. Now to excercise this option, should I have enough funds in my broker account to pay for the number of shares involved at the strike rate? Or will the diff between market price and strike price * lot size be credited to me?
Thanks.
One quick question.
If I have one lot of a call option of a stock and I am in profit, but cant sell it because there is no liquidity. Now to excercise this option, should I have enough funds in my broker account to pay for the number of shares involved at the strike rate? Or will the diff between market price and strike price * lot size be credited to me?
Thanks.
dear aw10, plz guide me, as i am holding old shares in my dp since long ,as i am following thread as the shares are A group like h honda ,acc like sufficient to get margin funding to sell calls,or write calls as i would like to write every month for premium . as i like to seek your advise ,like banks, mtnl,etc less volatile stocks plz suggest me as I am thankful to you.as I can bear less risk and even less reward also OK as my age doesnt permit ,my idea is to have some income from idle holding since 2decades, tHANK YOU SIR.
You may sell the covered calls on the stocks held by you if you have them in F & O market lot numbers... you first estimate how high you think the stocks will go and select 2-3 strikes above that to take care of unforeseen strong moves and sell the calls which will give you some steady income on your holding of stocks....but remember that if the market goes up too fast,you will loose your buy position.
Keeping these stocks as a margin and selling necked calls in some other scrips will be dangerous...you may loose all your margin and the shares....
Best wishes,
Smart_trade
Keeping these stocks as a margin and selling necked calls in some other scrips will be dangerous...you may loose all your margin and the shares....
Best wishes,
Smart_trade
if you are new to options then remember that options are nothing like stocks or futures. You will need to be well versed with option market. Better get a good book and read up.
Secondly, I don't think getting margin on stocks and then using this to write money is a good idea. You can end up being over-leveraged. One wrong move and you'll lose money on options as well as your stocks.
Low volatiliy is not always good. When IV's decrease prem also decreases. If you don't know what that means then you are not read to write options. Learn more about options, read up on whatever you get.
http://www.optiontradingpedia.com/
http://www.optionsuniversity.com/
Secondly, I don't think getting margin on stocks and then using this to write money is a good idea. You can end up being over-leveraged. One wrong move and you'll lose money on options as well as your stocks.
Low volatiliy is not always good. When IV's decrease prem also decreases. If you don't know what that means then you are not read to write options. Learn more about options, read up on whatever you get.
http://www.optiontradingpedia.com/
http://www.optionsuniversity.com/
| Thread starter | Similar threads | Forum | Replies | Date |
|---|---|---|---|---|
|
some beginner's questions on trading in nifty | Equities | 1 | |
| J | AFL Beginner's Queries | AmiBroker | 11 | |
| I | An Absolute Beginner's Hi to the Trading Community | Introductions | 0 | |
| D | Beginner's Question | Beginners Guide | 2 | |
| N | beginner's problem - please help | AmiBroker | 5 |