A Beginner's way to trade options.

[MurAtt]

Bro actually I want n request U all make it as simple as u can so all newbie including me can learn something here Really appreciate efforts of u all Thanx again God bless us all:thumb:

Do I need to say anything????

 

[jamit_05]

Amit,

No friend. First of all this is not an option strategy in the true sense of the word. We are not trying to buy or sell combinations here.

This is just a method to trade 60 min flow with lesser overnight risk than futures and lesser capital requirement. The risk per lot is limited to around 100 points if we are trading Nifty. Even in futures on 60 min your SL may be more than 150 points away and your orders are for the day only. So if we are long and have a 10% gap down the next day, using options our loss is limited to around 100 points(if we have done the MM homework that is).

Then there is the other advanatage that there is no MTM requirement.

Rgds

Indeed, these are two advantages we definitely have. Great stuff.

Only drawback is that the option price we are paying will reduce with passing time.

 

[praveen taneja]

Indeed, these are two advantages we definitely have. Great stuff.

Only drawback is that the option price we are paying will reduce with passing time.

Yes this is called Time Decay The worst known enemy of all options players Thats why people now start shorting straddle to be safe n earn through time decay
GOLDEN SUGGESTIONS
1) DO NOT OVER TRADE
2) Trade IN DIFFERENT SECTORS.
3)TRADE WITH TREND
4)DO NOT EXPECT PROFIT ON EVERY DAY.
5)WITHDRAW PORTION OF YOUR PROFIT.
6)AVOID TRADING IF YOU ARE NOT CLEAR
7)IF YOU WILL AVOID STOP -LOSS, NEXT DAY MARKET WILL AVOID YOU. (FOR TRADING WITHOUT CAPITAL)
8) TRADE ONLY IN HIGH VOLLUME STOCK ( FNO STOCKS& OPTIONS)
9)RUMOURS CAN RUIN YOU PLEASE DON'T FOLLOW THEM.

 

[jamit_05]

Selling straddle and protecting it by futures is a strategy to be done in stable markets....with the election results in this month and the expected volatility,overnight gaps....this strategy can kill you....I have some friends who lost fortunes in the Jan 08 fall and the overnight large gaps we used to have then....

I would not touch selling straddles before election results are out...we may buy the straddle just before the election results to take advantage of large swings expected in one direction ,but dont know which direction.

We will sell straddle once election results volatility subsides.

Smart_trade

Yes Sir, indeed.

One knows he is learning the right thing when following your guidelines.

I am looking forward to trading options the right way

 

[Flock]

Yes this is called Time Decay The worst known enemy of all options players Thats why people now start shorting straddle to be safe n earn through time decay
GOLDEN SUGGESTIONS
1) DO NOT OVER TRADE
2) Trade IN DIFFERENT SECTORS.
3)TRADE WITH TREND
4)DO NOT EXPECT PROFIT ON EVERY DAY.
5)WITHDRAW PORTION OF YOUR PROFIT.
6)AVOID TRADING IF YOU ARE NOT CLEAR
7)IF YOU WILL AVOID STOP -LOSS, NEXT DAY MARKET WILL AVOID YOU. (FOR TRADING WITHOUT CAPITAL)
8) TRADE ONLY IN HIGH VOLLUME STOCK ( FNO STOCKS& OPTIONS)
9)RUMOURS CAN RUIN YOU PLEASE DON'T FOLLOW THEM.

Thanks PT. Since you have been trading in options for long, can you tell which Nifty stocks have good volumes for us to buy and sell out of the money options without too much slippage.

Rgds

 

[jamit_05]

Hello,

Seniors pls provide your views regarding the following.

I have come to respect the idea of trading with a method. All thanks to Saint and ST. After doing so, all the concepts make sense that one has read in highly respected books (by Dr.Van Tharp, Michael Douglas, Alexander Elder to mention three that I have read).

With this mindset I would like to approach the subject of trading options.

I have realized that trading without a fixed method puts my chances of being long-term successful trader in a pretty shady area. Seniors could be right in completely disagreeing, because they have honed their skills in trading and analysis both, which for the rest of us is still an ambition. Therefore, having a set method is a must.

So, what if we traded options systematically with a method, which has a fixed entry point and rules for exit? Something very simple to start with. It may use only one or two of the option strategies, but with fixed rules. Let me illustrate with a crude example, just off the bat:

Placing a Bull call spread after a Pullback.

Entry Conditions: daily nifty trend must be up, followed by a pullback on the hourly... then at a PH break we enter.
STOP loss: at the Hourly PL. (accordingly set the positions size)
Exit: at EOM to gain 100 nifty points.

Simple... of course, with passing time we may further improve it (like we recently included the WRB rules in miniflow).

One thing I am sure of... there is no supernautic way of detecting the best entry or exit... however there are several ways to tilt the odds in my favor and following a logical method is one of them.

Pardon me for making you read through this longish post... thank you.

 

[terminator_123]

Hello,
....
So, what if we traded options systematically with a method, which has a fixed entry point and rules for exit? Something very simple to start with. It may use only one or two of the option strategies, but with fixed rules. Let me illustrate with a crude example, just off the bat:

Placing a Bull call spread after a Pullback.

Entry Conditions: daily nifty trend must be up, followed by a pullback on the hourly... then at a PH break we enter.
STOP loss: at the Hourly PL. (accordingly set the positions size)
Exit: at EOM to gain 100 nifty points.
.....

Following a system is good but you will have to measure the terms like 'pull back', 'PH' etc relative to your chosen time frame. For example there might be many pullbacks in hourly with several crossing previous high only to drop back. To keep things a bit formal u might want to choose one of the several indicators/trading systems (like combining ma/ema cross overs, macd, rsi etc). This also gives you opportunity to back test your system on previous data before blindly following it without emotions. Also make sure you don't tailor the system too close to previous data. Ideally test for a 3 months time frame at various quarters of previous years. You can include SL, trailing SL etc as variables of this system so that your exit, entry are well defined.

 

[sushil00033]

You can do that vineet,but we trade 60 min method not for 50-100 points but 200-300 points. In case you get a buy signal and sell ATM put,your profit will be restricted to the premium received. So if premium received is 130 rupees,your profit will be only 130 rupees even if market moves 400 points in your direction....

In case the market tanks and some overnight bad situation,you are taking unlimited risk by selling the put.

Instead of that if you buy a call your profits could be unlimited,but max risk limited to the premium paid. So in crash situation also you dont get hurt badly.

ST

what is diffrence between buy call & sell the put ?

sushil

 

[sushil00033]

Vineet,
ST Da has already replied to it. I am adding my 2 cents on this topic below.

Long Call and Short Put are both bullish strategy. That puts a challenge to options trader to take one more decision on which one to use (luckily stock/ futures trading does not give us that choice).

IMO, The factors that should help in decision making are following

Market bias - directional bias which is bullish. Neither sideway nor down.
Return For Long Call it is gain in premium MINUS time decay. Gain could be HIGH to very high. upper limited. For Short Put it is loss in premium PLUS time decay. Gains are limited.
Risk - For long call, limited to the premium paid, for Short Put it could be High to Very High (IMO, there is nothing called Unlimited in the market, nifty can gap against the position may be 200 pts, 400pts but still that is limited)
Timeframe of trade For day or swing trade lasting in 2 to3 days, effect of time decay will not be much compared to the effect given by price movement.
Account size For long call account atleast big enough to afford the premium cost (bigger account depending upon the position sizing rules of the trader), For short put Need margin and the buffer big enough to handle High to Very high risk. Whatever happens, trader will not blow his account with Long call but with short put, it is possible.
Traders attitude towards cash flow - If one is pay fast, recover later then Debit strategy of Long call is fine. But if one wants to collect first and pay later then Short Put is credit strategy.

Markets are dynamic and hence IMO, there is no single answer to this question. We got to take the bigger picture into account (not during the market hours but before that when drawing up our trade plan).

If this is too much to handle then atleast following 2 factors will simplify the job
- Limited Risk and HIGH reward (Long Call) v/s HIGH Risk and Liimited Reward (Short Put)


Hope this helps (or confuses)
Happy Trading.

hi vineet,
how do square up my long call ?
sushil

 

[Smart_trade]

what is diffrence between buy call & sell the put ?

sushil

Plenty of difference.Buying a call gives you a right ( but no obligation) to buy the underlying at a particular price till expiry....selling a put gives you obligation ( but no right) to buy the underlying at a particular price till expiry.Call buying you have to pay the premium...risk is limited...put selling you receive premium,risk large...(though not unlimited...underlying can worst case become zero)

Smart_trade