I recently heard a very successful Option Trader who mentioned that he earns 2% per week by trading in Option Writing of Bank Nifty?
When I tried to find out how it is possible I did not get the answer.
My thoughts were as follows
Margin required for 1 lot of Option Writing in Positional Trade is approx Rs. 55000/- per lot. If I have to earn 2% then I need to profit by Rs. 1100/- per lot. Lot size is 20. So premium points that I need to earn is 1100/20 = 55. Also brokerage and other charges work out to Rs. 50 per lot. So that works out to premium points of Rs. 50/20 = 2.5. Thus I need to earn 57.5 points per week per lot to earn 2% on my locked margin ie. Rs. 55000/-
Now if we place a trade on Friday morning say a call write some 700 points from the Spot Price and hedge it with put write some 700 points from Spot Price the total premium (call + put) most of the time is around 50 to 80 points. Since there are 2 lots (1 call and 1 put) I need to get 57.5 x 2 = 115 points to earn 2%. So even if market is range bound one can get only 50 to 80 points. Also keeping strike price less than 700 points from Spot Price to earn more premium is risky. Then how can someone earn 2% per week in Option Writing.
When I tried to find out how it is possible I did not get the answer.
My thoughts were as follows
Margin required for 1 lot of Option Writing in Positional Trade is approx Rs. 55000/- per lot. If I have to earn 2% then I need to profit by Rs. 1100/- per lot. Lot size is 20. So premium points that I need to earn is 1100/20 = 55. Also brokerage and other charges work out to Rs. 50 per lot. So that works out to premium points of Rs. 50/20 = 2.5. Thus I need to earn 57.5 points per week per lot to earn 2% on my locked margin ie. Rs. 55000/-
Now if we place a trade on Friday morning say a call write some 700 points from the Spot Price and hedge it with put write some 700 points from Spot Price the total premium (call + put) most of the time is around 50 to 80 points. Since there are 2 lots (1 call and 1 put) I need to get 57.5 x 2 = 115 points to earn 2%. So even if market is range bound one can get only 50 to 80 points. Also keeping strike price less than 700 points from Spot Price to earn more premium is risky. Then how can someone earn 2% per week in Option Writing.