Option trading with DanPickUp
- Thread starter DanPickUp
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Partially agree.Minimum 4k~5k is required to take position in minifty (intraday).
When you are tight on cash ,it is possible to take position just with less than
2k in OPTIONS based on the strike.Moreover all positions we take ,are POSITIONAL
in nature ,so we need not afraid of AUTO-SQUARE OFF.(Talking about NAKED options).
When you are tight on cash ,it is possible to take position just with less than
2k in OPTIONS based on the strike.Moreover all positions we take ,are POSITIONAL
in nature ,so we need not afraid of AUTO-SQUARE OFF.(Talking about NAKED options).
Dear Option.Trader
I do not agree with that to 100%. Futures are as interesting as options.
May I ask you where you really make your big money ? Is it with options or is it with futures or .........?
Good trading
DanPickUp
I do not agree with that to 100%. Futures are as interesting as options.
May I ask you where you really make your big money ? Is it with options or is it with futures or .........?
Good trading
DanPickUp
that is the difference. I don't see any thing big different in futures as well as options for make money. for example if want to make Rs 100/- then you have risk rs 20/- for the trade having RR 1:5
it is applicable to both future as well as options:thumb:
Hi
An option trader which has all my respect for his way of trading options mentioned in the net a book, which in my opinion doe's the work for two subjects:
First part of the book is about trend trading for a living and the second part is about trading options in trends.
The first part is more in stocks, but certain ideas can be adapted to futures. As I got a few PMs in the past, asking what kind of books to read about options, I really can recommend the option part in the following book as it doe's the work very well. Options and some few option strategies are explained in a way which is easy to understand and can be adapted also in your market.
The name of the book is: Trend trading for a living and the writers name is Dr. Thomas K. Carr
Google it.
Good trading
DanPickUp
An option trader which has all my respect for his way of trading options mentioned in the net a book, which in my opinion doe's the work for two subjects:
First part of the book is about trend trading for a living and the second part is about trading options in trends.
The first part is more in stocks, but certain ideas can be adapted to futures. As I got a few PMs in the past, asking what kind of books to read about options, I really can recommend the option part in the following book as it doe's the work very well. Options and some few option strategies are explained in a way which is easy to understand and can be adapted also in your market.
The name of the book is: Trend trading for a living and the writers name is Dr. Thomas K. Carr
Google it.
Good trading
DanPickUp
Hi Dan ,
Some doubt in options while calculating the price of an option using black-scholes model.
As on 26-6-2012
Current security price : 5120.8
Excercise price : 5100
Interest rate% : 8.09
Expiry : 28/6/2012
Volatility : 20.23 [ As given by IndiaVix]
Dividend rate :0
Option Price according to model
5100CE = 34.299
5100PE = 12.36
Actual price of the options
5100CE = 50.2 with IV 36%
5100PE = 14 with IV 22%
So whats the point of using Historical volatility if it doesnt sync with implied volatility??
Is implied volatility different for Calls and puts?
Is IV different for different strikes in CE's and PE's?
how do we calculate IV ? How do we get to know during markets if volatility is increasing or decreasing and be careful while trading with options heavily without losing money ?
I remember back in January taking huge position in options and options value decreased a lot which was not much due to TimeValue but due to decrease in Volatility .
Regards
Some doubt in options while calculating the price of an option using black-scholes model.
As on 26-6-2012
Current security price : 5120.8
Excercise price : 5100
Interest rate% : 8.09
Expiry : 28/6/2012
Volatility : 20.23 [ As given by IndiaVix]
Dividend rate :0
Option Price according to model
5100CE = 34.299
5100PE = 12.36
Actual price of the options
5100CE = 50.2 with IV 36%
5100PE = 14 with IV 22%
So whats the point of using Historical volatility if it doesnt sync with implied volatility??
Is implied volatility different for Calls and puts?
Is IV different for different strikes in CE's and PE's?
how do we calculate IV ? How do we get to know during markets if volatility is increasing or decreasing and be careful while trading with options heavily without losing money ?
I remember back in January taking huge position in options and options value decreased a lot which was not much due to TimeValue but due to decrease in Volatility .
Regards
Nowadays IV's are available on NSE's website.
www.nseindia.com > Derivative > option chain >F&O
will have to check if they are updated intraday.
www.nseindia.com > Derivative > option chain >F&O
will have to check if they are updated intraday.
Hi
A whole baggage of question you have my friend. Ok, let me go through the questions number by number:
1. Historical volatility against Implied volatility
Historical Volatility
Historical Volatility is a measure of price fluctuation over time. It uses historical price data to empirically measure the volatility of a market or instrument in the past. In other words, it is also known as statistical volatility, which is also the standard deviation of day to day price change expressed as annual percentage. In terms of practical implementation in trading, Historical volatility is essentially used to know how a stock or future has fluctuated in the past and how much likely it is to do.
Implied Volatility
In stocks we have stock options as we in futures have future options. Ideally, a stock or future option should have volatility equal to that of the underlying. When the price of a stock or future option is calculated using the volatility of the underlying stock or future, we get the theoretical price of the option. But hardly do options have volatility equal to that of the underlying. The volatility implied by stock or future options can be higher or lower depending on how the market views the options.
The options volatility is therefore called implied volatility. When implied volatility of options is high we say options premium is high. The opposite is also true.
2. Implied volatility in puts and calls
Have a look at the following screen shot. It was made in the past in the Euro. Check the 143 put and check the 143 call. The 143 put had an IV of 7.4% and the 143 call has an IV of 8.6%
As you see, the IV not necessary must be the same for the put and the call. Here again it depends on the market outlook of the people. If they are more bearish, the puts usually have a higher IV and vice versa with the calls.
3. IV on different strikes by call and put
The above screen shot also answer that. Different strike levels also have different IV. Check the 142 call and check the 142.5 put. The 142 call has an IV of 7% and the 142.5 put has an IV of 8.5%. That is because the risk on each of a strike level is different. Far out of the money can have huge IV as there is much more uncertainty compare to atm or itm options.
Here some more examples:
The same distance to the spot at 1525 but put and call have different IV: http://i45.tinypic.com/8xjy50.png
Here an example with a far out of the money option. You see how much more IV they can have compare to an atm option: http://i47.tinypic.com/11tlmol.png
4. How to calculate IV
Just do as shown in the following picture:
and here just an add for the fair value calculation for those which are not sure with it:
http://i48.tinypic.com/11u9lhu.png
5. What about during market hours. How do we know if the IV is rising or declining?
If your intra day option trading depends on that, you really need a platform or a software which gives you that information live as market moves on. Otherwise use your commons sense. Check the trend or tendency the market has. If the trend is up, the calls tend to have a higher IV and vice versa for the puts. If you are not sure about the trend or the tendency of the market, check the bid ask spreads or place some limit orders to see if you get filled. If you get easily filled it may is a sign that the market sentiment is changing or that IV has changed. Takes some experience to do such little testing games.
Puhh. That was work.
Good trading
DanPickUp
(One source you may are interested in: http://ngureco.hubpages.com/hub/For...ion-Variance-and-Excel-Formula-for-Volatility)
A whole baggage of question you have my friend.
Ok, let me go through the questions number by number:1. Historical volatility against Implied volatility
Historical Volatility
Historical Volatility is a measure of price fluctuation over time. It uses historical price data to empirically measure the volatility of a market or instrument in the past. In other words, it is also known as statistical volatility, which is also the standard deviation of day to day price change expressed as annual percentage. In terms of practical implementation in trading, Historical volatility is essentially used to know how a stock or future has fluctuated in the past and how much likely it is to do.
Implied Volatility
In stocks we have stock options as we in futures have future options. Ideally, a stock or future option should have volatility equal to that of the underlying. When the price of a stock or future option is calculated using the volatility of the underlying stock or future, we get the theoretical price of the option. But hardly do options have volatility equal to that of the underlying. The volatility implied by stock or future options can be higher or lower depending on how the market views the options.
The options volatility is therefore called implied volatility. When implied volatility of options is high we say options premium is high. The opposite is also true.
2. Implied volatility in puts and calls
Have a look at the following screen shot. It was made in the past in the Euro. Check the 143 put and check the 143 call. The 143 put had an IV of 7.4% and the 143 call has an IV of 8.6%
As you see, the IV not necessary must be the same for the put and the call. Here again it depends on the market outlook of the people. If they are more bearish, the puts usually have a higher IV and vice versa with the calls.
3. IV on different strikes by call and put
The above screen shot also answer that. Different strike levels also have different IV. Check the 142 call and check the 142.5 put. The 142 call has an IV of 7% and the 142.5 put has an IV of 8.5%. That is because the risk on each of a strike level is different. Far out of the money can have huge IV as there is much more uncertainty compare to atm or itm options.
Here some more examples:
The same distance to the spot at 1525 but put and call have different IV: http://i45.tinypic.com/8xjy50.png
Here an example with a far out of the money option. You see how much more IV they can have compare to an atm option: http://i47.tinypic.com/11tlmol.png
4. How to calculate IV
Just do as shown in the following picture:
and here just an add for the fair value calculation for those which are not sure with it:
http://i48.tinypic.com/11u9lhu.png
5. What about during market hours. How do we know if the IV is rising or declining?
If your intra day option trading depends on that, you really need a platform or a software which gives you that information live as market moves on. Otherwise use your commons sense. Check the trend or tendency the market has. If the trend is up, the calls tend to have a higher IV and vice versa for the puts. If you are not sure about the trend or the tendency of the market, check the bid ask spreads or place some limit orders to see if you get filled. If you get easily filled it may is a sign that the market sentiment is changing or that IV has changed. Takes some experience to do such little testing games.
Puhh. That was work.
Good trading
DanPickUp
(One source you may are interested in: http://ngureco.hubpages.com/hub/For...ion-Variance-and-Excel-Formula-for-Volatility)
Some more infos about how to calculate the IV of options:
http://www.quantonline.co.za/Articles/article_volatility.htm
And here just an idea how to make money with knowing the SV but not knowing the exact IV of the option. Not sure if it works in your market. So you may test it once:
Option 6% OTM*
When the OEX volatility was 20%, an option that was 6% OTM with 10 days until expiration likely had no realistic chance of being worth something before or at expiration, thus it was probably trading for $0.05 (the minimum option price). Once volatility went to 40%, there was now a reasonable chance of the option strike 6% OTM being worth something, so the market will begin to assign it a value. Certainly anyone who had sold them thinking they were going out worthless will want to buy them back to avoid the options increasing in price, and losing money on the options.
The option that had no value and was offered at $0.05 will have people trying to buy them back, so the option will likely become $0.05 bid. If everyone around you is trying to buy the option for $0.05, is there a realistic likelihood that you will get to buy the options for $0.05 before anyone else including the traders on the floor? Eventually, enough fear will precipitate people feeling the need to buy back their naked short puts before they cause any real harm, and may decide to pay $0.10 before they can't buy them back at all.
This purchase of an option for $0.10 now has the nervous traders who were hoping to get the options bought for $0.05, in panic mode. They will no longer have enough patience to wait things out, as they all have had a $0.05 option go to at least $ 1 at some point in their career, so $0.10 does not seem too bad now. In addition, a broker who has an order to buy those options at the market price sees they are now $0.10 bid and offered at $0.15. He is forced to buy the $0.15 ask price. You now see how vega increases the price of a 'garbage' option just as it does with a closer to-the-money option, provided the option has some realistic chance of being worth something.
*(Source: Option Greeks for profit by J.L.Lord)
If you have the time, a must read book for option traders.
DanPickUp
http://www.quantonline.co.za/Articles/article_volatility.htm
And here just an idea how to make money with knowing the SV but not knowing the exact IV of the option. Not sure if it works in your market. So you may test it once:
Option 6% OTM*
When the OEX volatility was 20%, an option that was 6% OTM with 10 days until expiration likely had no realistic chance of being worth something before or at expiration, thus it was probably trading for $0.05 (the minimum option price). Once volatility went to 40%, there was now a reasonable chance of the option strike 6% OTM being worth something, so the market will begin to assign it a value. Certainly anyone who had sold them thinking they were going out worthless will want to buy them back to avoid the options increasing in price, and losing money on the options.
The option that had no value and was offered at $0.05 will have people trying to buy them back, so the option will likely become $0.05 bid. If everyone around you is trying to buy the option for $0.05, is there a realistic likelihood that you will get to buy the options for $0.05 before anyone else including the traders on the floor? Eventually, enough fear will precipitate people feeling the need to buy back their naked short puts before they cause any real harm, and may decide to pay $0.10 before they can't buy them back at all.
This purchase of an option for $0.10 now has the nervous traders who were hoping to get the options bought for $0.05, in panic mode. They will no longer have enough patience to wait things out, as they all have had a $0.05 option go to at least $ 1 at some point in their career, so $0.10 does not seem too bad now. In addition, a broker who has an order to buy those options at the market price sees they are now $0.10 bid and offered at $0.15. He is forced to buy the $0.15 ask price. You now see how vega increases the price of a 'garbage' option just as it does with a closer to-the-money option, provided the option has some realistic chance of being worth something.
*(Source: Option Greeks for profit by J.L.Lord)
If you have the time, a must read book for option traders.
DanPickUp
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